syf-20201231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)


☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

001-36560

(Commission File Number)

SYNCHRONY FINANCIAL

(Exact name of registrant as specified in its charter)


Delaware						51-0483352
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)


777 Long Ridge Road
Stamford,	Connecticut	06902
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number, including area code) (203) 585-2400

Securities Registered Pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.001 per share	SYF	New York Stock Exchange
Depositary Shares Each Representing a 1/40th Interest in a Share of 5.625% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A	SYFPrA	New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:


Title of class
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the outstanding common equity of the registrant held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter was $12,935,102,284,

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of February 8, 2021 was 583,881,805

DOCUMENTS INCORPORATED BY REFERENCE

The definitive proxy statement relating to the registrant’s Annual Meeting of Stockholders, to be held May 20, 2021, is incorporated by reference into Part III to the extent described therein.

Synchrony Financial

Table of Contents

OUR ANNUAL REPORT ON FORM 10-K

To improve the readability of this document and better present both our financial results and how we manage our business, we present the content of our Annual Report on Form 10-K in the order listed in the table of contents below. See "Form 10-K Cross-Reference Index" on page 4 for a cross-reference index to the traditional U.S. Securities and Exchange Commission (SEC) Form 10-K format.


		Page
OUR BUSINESS		7
	Our Company	7
	Our Sales Platforms	8
	Our Customers	15
	Our Credit Products	18
	Direct-to-Consumer Banking	20
	Credit Risk Management	21
	Customer Service	22
	Production Services	23
	Technology and Data Security	23
	Intellectual Property	24
	Human Capital	24
	Regulation	25
	Competition	25

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		27
	Results of Operations	27
	Loan Receivables	43
	Funding, Liquidity and Capital Resources	46
	Liquidity	51
	Quantitative and Qualitative Disclosures About Market Risk	52
	Capital	54

	Off-Balance Sheet Arrangements and Unfunded Lending Commitments	56
	Critical Accounting Estimates	56
	New Accounting Standards	58

RISKS		59
	Risk Factors Summary	59
	Risk Factors Relating To Our Business	61
	Risk Management	80

REGULATION		85
	Regulation Relating to Our Business	85
	Risk Factors Relating to Regulation	95

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		101
	Report of Independent Registered Public Accounting Firm	101
	Consolidated Financial Statements	105
	Notes to Consolidated Financial Statements	110
	Controls and Procedures	140

OTHER KEY INFORMATION		141
	Properties	141
	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	142
	Exhibits and Financial Statement Schedules	145
	Signatures	155

FORM 10-K CROSS REFERENCE INDEX

____________________________________________________________________________________________


Part I		Page(s)

Item 1.	Business	8 - 25, 79 - 94

Item 1A.	Risk Factors	59 - 78, 94 - 99

Item 1B.	Unresolved Staff Comments	Not Applicable

Item 2.	Properties	141

Item 3.	Legal Proceedings	137 - 138

Item 4.	Mine Safety Disclosures	Not Applicable

Part II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	142 - 143

Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27 - 51, 53 - 57

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	52 - 52

Item 8.	Financial Statements and Supplementary Data	101 - 138

Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	Not Applicable

Item 9A.	Controls and Procedures	140

Item 9B.	Other Information	Not Applicable

Part III

Item 10.	Directors, Executive Officers and Corporate Governance	(a)

Item 11.	Executive Compensation	(b)

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	(c)

Item 13.	Certain Relationships and Related Transactions, and Director Independence	(d)

Item 14.	Principal Accounting Fees and Services	(e)

Part IV

Item 15.	Exhibits and Financial Statement Schedules	145 - 153

Item 16.	Form 10-K Summary	Not Applicable

Signatures		155 - 156

______________________

(a)Incorporated by reference to “Management”, “Election of Directors,” “Governance Principles,” “Code of Conduct” and “Committees of the Board of the Directors” in our definitive proxy statement for our 2021 Annual Meeting of Stockholders to be held on May 20, 2021, which will be filed within 120 days of the end our fiscal year ended December 31, 2020 (the “2021 Proxy Statement”).

(b)Incorporated by reference to “Compensation Discussion and Analysis,” “2020 Executive Compensation,” “Management Development and Compensation Committee Report” and “Management Development and Compensation Committee Interlocks and Insider Participation” and “CEO Pay Ratio” in the 2021 Proxy Statement.

(c)Incorporated by reference to “Beneficial Ownership” and “Equity Compensation Plan Information” in the 2021 Proxy Statement.

(d)Incorporated by reference to “Related Person Transactions,” “Election of Directors” and “Committees of the Board of Directors” in the 2021 Proxy Statement.

(e)Incorporated by reference to “Independent Auditor” in the 2021 Proxy Statement.

Certain Defined Terms

Except as the context may otherwise require in this report, references to:

•“we,” “us,” “our” and the “Company” are to SYNCHRONY FINANCIAL and its subsidiaries;

•“Synchrony” are to SYNCHRONY FINANCIAL only;

•the “Bank” are to Synchrony Bank (a subsidiary of Synchrony);

•the “Board of Directors” or “Board” are to Synchrony’s board of directors; and

•“VantageScore” or “Vantage” are to a credit score developed by the three major credit reporting agencies which is used as a means of evaluating the likelihood that credit users will pay their obligations.

We provide a range of credit products through programs we have established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers, which, in our business and in this report, we refer to as our “partners.” The terms of the programs all require cooperative efforts between us and our partners of varying natures and degrees to establish and operate the programs. Our use of the term “partners” to refer to these entities is not intended to, and does not, describe our legal relationship with them, imply that a legal partnership or other relationship exists between the parties or create any legal partnership or other relationship. The “average length of our relationship” with respect to a specified group of partners or programs is measured on a weighted average basis by interest and fees on loans for the year ended December 31, 2020 for those partners or for all partners participating in a program, based on the date each partner relationship or program, as applicable, started. Information with respect to partner “locations” in this report is given at December 31, 2020. “Open accounts” represents credit card or installment loan accounts that are not closed, blocked or more than 60 days delinquent.

Unless otherwise indicated, references to “loan receivables” do not include loan receivables held for sale.

For a description of certain other terms we use, including “active account” and “purchase volume,” see the notes to Management’s Discussion and Analysis—Results of Operations—Other Financial and Statistical Data.” There is no standard industry definition for many of these terms, and other companies may define them differently than we do.

“Synchrony” and its logos and other trademarks referred to in this report, including, CareCredit®, Quickscreen®, Dual Card™, Synchrony Car Care™ and SyPI™ belong to us. Solely for convenience, we refer to our trademarks in this report without the ™ and ® symbols, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our trademarks. Other service marks, trademarks and trade names referred to in this report are the property of their respective owners.

On our website at www.synchronyfinancial.com, we make available under the "Investors-SEC Filings" menu selection, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports or amendments are electronically filed with, or furnished to, the SEC. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information that we file electronically with the SEC.

Industry and Market Data

This report contains various historical and projected financial information concerning our industry and market. Some of this information is from industry publications and other third-party sources, and other information is from our own data and market research that we commission. All of this information involves a variety of assumptions, limitations and methodologies and is inherently subject to uncertainties, and therefore you are cautioned not to give undue weight to it. Although we believe that those industry publications and other third-party sources are reliable, we have not independently verified the accuracy or completeness of any of the data from those publications or sources.

Cautionary Note Regarding Forward-Looking Statements:

Various statements in this Annual Report on Form 10-K may contain “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “targets,” “outlook,” “estimates,” “will,” “should,” “may” or words of similar meaning, but these words are not the exclusive means of identifying forward-looking statements.

Forward-looking statements are based on management’s current expectations and assumptions, and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, actual results could differ materially from those indicated in these forward-looking statements. Factors that could cause actual results to differ materially include global political, economic, business, competitive, market, regulatory and other factors and risks, such as: the impact of macroeconomic conditions and whether industry trends we have identified develop as anticipated, including the future impacts of the novel coronavirus disease (“COVID-19”) outbreak and measures taken in response thereto for which future developments are highly uncertain and difficult to predict; retaining existing partners and attracting new partners, concentration of our revenue in a small number of Retail Card partners, and promotion and support of our products by our partners; cyber-attacks or other security breaches; disruptions in the operations of our and our outsourced partners' computer systems and data centers; the financial performance of our partners; the sufficiency of our allowance for credit losses and the accuracy of the assumptions or estimates used in preparing our financial statements, including those related to the CECL accounting guidance; higher borrowing costs and adverse financial market conditions impacting our funding and liquidity, and any reduction in our credit ratings; our ability to grow our deposits in the future; damage to our reputation; our ability to securitize our loan receivables, occurrence of an early amortization of our securitization facilities, loss of the right to service or subservice our securitized loan receivables, and lower payment rates on our securitized loan receivables; changes in market interest rates and the impact of any margin compression; effectiveness of our risk management processes and procedures, reliance on models which may be inaccurate or misinterpreted, our ability to manage our credit risk; our ability to offset increases in our costs in retailer share arrangements; competition in the consumer finance industry; our concentration in the U.S. consumer credit market; our ability to successfully develop and commercialize new or enhanced products and services; our ability to realize the value of acquisitions and strategic investments; reductions in interchange fees; fraudulent activity; failure of third-parties to provide various services that are important to our operations; international risks and compliance and regulatory risks and costs associated with international operations; alleged infringement of intellectual property rights of others and our ability to protect our intellectual property; litigation and regulatory actions; our ability to attract, retain and motivate key officers and employees; tax legislation initiatives or challenges to our tax positions and/or interpretations, and state sales tax rules and regulations; regulation, supervision, examination and enforcement of our business by governmental authorities, the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and other legislative and regulatory developments and the impact of the Consumer Financial Protection Bureau’s (the “CFPB”) regulation of our business; impact of capital adequacy rules and liquidity requirements; restrictions that limit our ability to pay dividends and repurchase our common stock, and restrictions that limit the Bank’s ability to pay dividends to us; regulations relating to privacy, information security and data protection; use of third-party vendors and ongoing third-party business relationships; and failure to comply with anti-money laundering and anti-terrorism financing laws.

For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included in “Risk Factors Relating to Our Business” and “Risk Factors Relating to Regulation.” You should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties, or potentially inaccurate assumptions that could cause our current expectations or beliefs to change. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by law.

OUR BUSINESS

Our Company

____________________________________________________________________________________________

We are a premier consumer financial services company delivering a wide range of specialized financing programs, as well as innovative consumer banking products, across key industries including digital, retail, home, auto, travel, health and pet. We provide a range of credit products through our financing programs which we have established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers, which we refer to as our “partners.” Through our partners’ over 440,000 locations across the United States and Canada, and their websites and mobile applications, we offer their customers a variety of credit products to finance the purchase of goods and services. During 2020, we financed $139.1 billion of purchase volume, and at December 31, 2020, we had $81.9 billion of loan receivables and 68.5 million active accounts.

Our business benefits from longstanding and collaborative relationships with our partners, including some of the nation’s leading retailers and manufacturers with well-known consumer brands, such as Lowe’s and Ashley HomeStore and also leading digital partners, such as Amazon and PayPal. We believe our partner-centric business model has been successful because it aligns our interests with those of our partners and provides substantial value to both our partners and our customers. Our partners promote our credit products because they generate increased sales and strengthen customer loyalty. Our customers benefit from instant access to credit, discounts, such as cash back rewards, and promotional offers. We seek to differentiate ourselves through deep partner integration and our extensive marketing expertise. We have omni-channel (in-store, online and mobile) technology and marketing capabilities, which allow us to offer and deliver our credit products instantly to customers across multiple channels. We continue to invest in, and develop, our digital assets to ensure our partners are well positioned for the rapidly evolving environment as the COVID-19 pandemic forced many of our partners to do business differently. We have been able to demonstrate our digital capabilities by providing solutions that meet the needs of our partners and customers, with approximately 60% of our applications in 2020 processed through a digital channel.

We conduct our operations through a single business segment. Profitability and expenses, including funding costs, credit losses and operating expenses, are managed for the business as a whole. Substantially all of our operations are within the United States. We offer our credit products through three sales platforms (Retail Card, Payment Solutions and CareCredit). Those platforms are organized by the types of products we offer and the partners we work with, and are measured on interest and fees on loans, loan receivables, active accounts and other sales metrics. Retail Card is a leading provider of private label credit cards, and also provides Dual Cards, general purpose co-branded credit cards and small and medium-sized business credit products. Payment Solutions is a leading provider of promotional financing for major consumer purchases, offering primarily private label credit cards, Dual Cards and installment loans. CareCredit is a leading provider of promotional financing to consumers for health, veterinary and personal care procedures, services and products, including dental, vision, audiology and cosmetic.

We offer our credit products primarily through our wholly-owned subsidiary, the Bank. In addition, through the Bank, we offer, directly to retail and commercial customers, a range of deposit products insured by the Federal Deposit Insurance Corporation (“FDIC”), including certificates of deposit, individual retirement accounts (“IRAs”), money market accounts and savings accounts. We also take deposits at the Bank through third-party securities brokerage firms that offer our FDIC-insured deposit products to their customers. We have significantly expanded our online direct banking operations in recent years and our deposit base serves as a source of stable and diversified low cost funding for our credit activities. At December 31, 2020, we had $62.8 billion in deposits, which represented 80% of our total funding sources.

Our Sales Platforms

____________________________________________________________________________________________

We offer our credit products through three sales platforms: Retail Card, Payment Solutions and CareCredit. Set forth below is a summary of certain information relating to our Retail Card, Payment Solutions and CareCredit platforms:

Retail Card

Retail Card is a leading provider of private label credit cards, and also provides Dual Cards, general purpose co-branded credit cards and small and medium-sized business credit products. Retail Card accounted for $11.0 billion, or 69%, of our total interest and fees on loans for the year ended December 31, 2020. Substantially all of the credit extended in this platform is on standard (i.e., non-promotional) terms.

Retail Card’s revenue primarily consists of interest and fees on our loan receivables. Other income primarily consists of interchange fees earned when our Dual Card or general purpose co-branded cards are used outside of our partners’ sales channels and fees paid to us by customers who purchase our debt cancellation products, less loyalty program payments.

Retail Card Partners

We have Retail Card programs with 25 national and regional retailers, which have approximately 20,000 retail locations and include department stores, specialty retailers, mass merchandisers and digital (multi-channel and online retailers). The average length of our relationship with our Retail Card partners is 23 years.


Interest and fees on loans by retail market from our Retail Card partners Year ended December 31, 2020


Note: Travel & Entertainment <1%


Retail Card partners
At December 31, 2020 (length of relationship in years)
Mass merchandisers	Specialty retailers	Department stores
Lowe's (41)	American Eagle (24)	Belk (15)
Sam's Club (27)	At Home (3)	JCPenney (21)
	Crate and Barrel (2)
Digital	Dick's Sporting Goods (17)	Travel & Entertainment
Amazon (13)	Fleet Farm (15)	Cathay Pacific Airways (3)
eBay (16)	Gap (22)	Fareportal (4)
Google Store (4)	Harbor Freight Tools (2)	Marvel (4)
PayPal (16)	Nissan (3)	Norwegian Air (1)
Qurate (15)	TJX (9)
Rakuten (7)
ShopHQ (14)
Verizon (1)

Our five largest programs are with Retail Card partners. Based upon interest and fees on loans for the year ended December 31, 2020, our five largest programs were: Gap, JCPenney, Lowe’s, PayPal and Sam’s Club. These programs accounted in aggregate for 51% of our total interest and fees on loans for the year ended December 31, 2020, and 47% of loan receivables at December 31, 2020. Our programs with Lowe's and PayPal, which includes our Venmo program, each accounted for more than 10% of our total interest and fees on loans for the year ended December 31, 2020.

The length of our relationship with each of our five largest Retail Card partners is over 16 years, and in the case of Lowe's, 41 years. The current expiration dates for these agreements range from 2022 through 2030.

The share of our Retail Card sales platform from our digital partners continues to grow. Our digital partners accounted in aggregate for 34% of our interest and fees on loans for the year ended December 31, 2020, and 38% of our loan receivables at December 31, 2020 attributable to our Retail Card partners. We expect loan receivables attributable to our digital partners to continue to grow through organic growth and establishment of new programs such as the launch of the Verizon Credit Card in June 2020 and the first-ever Venmo Credit Card in October 2020.

New and Extended Partner Programs

During the year ended December 31, 2020 we launched new programs with Harbor Freight Tools, Venmo and Verizon, and also extended our program agreements with Google and Sam's Club.

A total of 14 of our 25 ongoing Retail Card program agreements now have an expiration date in 2025 or beyond. These 14 program agreements represented in the aggregate 87% of our Retail Card interest and fees on loans for the year ended December 31, 2020 and 88% of our Retail Card loan receivables at December 31, 2020 attributable to our ongoing programs.

Retail Card Program Agreements

Our Retail Card programs are governed by program agreements that are each negotiated separately with our partners. Although the terms of the agreements are partner-specific, and may be amended from time to time, under a typical program agreement, our partner agrees to support and promote the program to its customers, but we control credit criteria and issue credit cards to customers who qualify under those criteria. We own the underlying accounts and all loan receivables generated under the program from the time of origination. Other key provisions in the Retail Card program agreements include:

Term

Retail Card program agreements typically have contract terms ranging from approximately five to ten years. Many program agreements have renewal clauses that provide for automatic renewal for one or more years until terminated by us or our partner. We typically seek to renew the program agreements well in advance of their termination dates.

Exclusivity

The program agreements typically are exclusive for the products we offer and limit our partners’ ability to originate or promote other private label or co-branded credit cards during the term of the agreement.

Retailer Share Arrangements

Most of our Retail Card program agreements contain retailer share arrangements that provide for payments to our partner if the economic performance of the program exceeds a contractually-defined threshold. Economic performance for the purposes of these arrangements is typically measured based on agreed upon program revenues (including interest income and certain other income) less agreed upon program expenses (including interest expense, provision for credit losses, retailer payments and operating expenses). We may also provide other economic benefits to our partners such as royalties on purchase volume or payments for new accounts, in some cases instead of retailer share arrangements (for example, on our co-branded credit cards). All of these arrangements align our interests and provide an additional incentive to our partners to promote our credit products.

Other Economic Terms

In addition to the retailer share arrangements, the program agreements typically provide that the parties will develop a marketing plan to support the program, and they set the terms by which a joint marketing budget is funded, the basic terms of the rewards program linked to the use of our product (such as opportunities to receive double rewards points for purchases made on a Retail Card product), and the allocation of costs related to the rewards program.

Termination

The program agreements set forth the circumstances in which a party may terminate the agreement prior to expiration. Our program agreements generally permit us and our partner to terminate the agreement prior to its scheduled termination date for various reasons, including if the other party materially breaches its obligations. Some program agreements also permit our partner to terminate the program if we fail to meet certain service levels or change certain key cardholder terms or our credit criteria, we fail to achieve certain approval rate targets with respect to approvals of new customers, we elect not to increase the program size when the outstanding loan receivables under the program reach certain thresholds, we are not adequately capitalized, certain force majeure events occur or certain changes in our ownership occur. Certain program agreements are also subject to early termination by a party if the other party has a material adverse change in its financial condition. Historically, these rights have not typically been triggered or exercised. Some of our program agreements provide that, upon termination or expiration, our partner may purchase or designate a third party to purchase the accounts and loan receivables generated with respect to its program at fair market value or a stated price, including all related customer data.

Payment Solutions

Payment Solutions is a leading provider of promotional financing for major consumer purchases, offering consumer choice for financing at the point of sale, including primarily private label credit cards, Dual Cards and installment loans. Payment Solutions accounted for $2.7 billion, or 17%, of our total interest and fees on loans for the year ended December 31, 2020. Credit extended in this platform, other than for our oil and gas retail partners, is primarily promotional financing.

Payment Solutions’ revenue primarily consists of interest and fees on our loan receivables, including “merchant discounts,” which are fees paid to us by our partners in almost all cases to compensate us for all or part of the foregone interest income associated with promotional financing. The types of promotional financing we offer include deferred interest (interest accrues during a promotional period and becomes payable if the full purchase amount is not paid off during the promotional period), no interest (no interest on a promotional purchase) and reduced interest (interest is assessed monthly at a promotional interest rate during the promotional period). As a result, during the promotional period we do not generate interest income or generate it at a lower rate, although we continue to generate fee income relating to late fees on required minimum payments.

Payment Solutions Partners

In Payment Solutions, we create customized credit programs for national and regional retailers, manufacturers, buying groups, and industry associations. In addition, we create our own industry vertical programs, which are available to local, small and medium size merchants to provide financing offers to their customers.

At December 31, 2020, our Payment Solutions partners had approximately 170,000 retail locations, including oil and gas retail locations. Payment Solutions is diversified by program, with no one Payment Solutions program accounting for more than 1.5% of our total interest and fees on loans for the year ended December 31, 2020. At December 31, 2020, the average length of our relationships with our ten largest ongoing Payment Solutions programs was 14 years.


Payment Solutions interest and fees on loans by retail market Year ended December 31, 2020


Top 10 Payment Solutions programs(1)
At December 31, 2020
Partner (length of relationship in years)			Category
Ashley HomeStore (9)			Home furnishings
BP (5)			Automotive
Chevron (13)			Automotive
Discount Tire (22)			Automotive
Home Furnishings Association (11)			Home furnishings
Mattress Firm (20)			Home furnishings
Nationwide Marketing Group (20)			Home furnishings
Polaris (14)			Power
Rooms to Go (18)			Home furnishings
Sleep Number (17)			Home furnishings
_____________________
(1) Based on interest and fees on loans for the year ended December 31, 2020.

In Payment Solutions, we generally partner with sellers of “big-ticket” products or services (generally priced from $500 to $25,000) to consumers where our financing products and industry expertise provide strong incremental value to our partners and their customers. We also promote our programs to sellers through direct marketing activities such as industry trade publications, trade shows and sales efforts by dedicated internal and external sales teams, leveraging our existing partner network or through endorsements from manufacturers, buying groups and industry associations. Our broad array of point-of-sale technologies and quick enrollment process allow us to quickly and cost-effectively integrate new partners.

During the year ended December 31, 2020, we:

▪announced our new partnerships with:

◦Adorama, Club Champion, Doosan Bobcat, HiSun, Levin Furniture and Mattress, Modani Furniture and Piaggio.

•extended our program agreements with:

◦ABC Warehouse, Bernina, CarX, Englert, 4 Wheel Parts, Hanks, Icahn Enterprises LP automotive brands (Pep Boys, AAMCO Transmissions, Precision Tune Auto Care, Cottman Transmission and Auto Plus Auto Parts), Kane's Furniture, Kawasaki, Living Spaces, Mattress Firm, Puronics, SVP Sewing Brands LLC, System Pavers and Vanderhall.

▪completed the sale of loan receivables associated with our program agreement with Yamaha.

Payment Solutions Program Agreements

National and Regional Retailers and Manufacturers

The terms of our program agreements with national and regional retailers and manufacturers are typically similar to the terms of our Retail Card program agreements in that we are the exclusive program provider of financing for the national or regional retailer or manufacturer with respect to the financing products that we offer. Some program agreements, however, allow the merchant to use a second source lender after an application has been submitted to us and declined, or in the case of some of our programs, may allow the manufacturer to have several primary lenders. The terms of the program agreements generally run from three to five years and are subject to termination prior to the scheduled termination date by us or our partner for various reasons, including if the other party materially breaches its obligations. Some of these programs also permit our partner to terminate the program if we change certain key cardholder terms, exceed certain pricing thresholds, certain force majeure events occur, certain changes in our ownership occur or there is a material adverse change in our financial condition. A few of these programs also may be terminated at will by the partner on specified notice to us (e.g., several months). Many of these program agreements have renewal clauses which allow the program agreement to be renewed for successive one or more year terms until terminated by us or our partner. We typically negotiate with program participants to renew the program agreements well in advance of their termination dates.

We control credit criteria and issue credit cards or provide installment loans to customers who qualify under those credit criteria. We own the underlying accounts and all loan receivables generated under the program from the time of origination. Our Payment Solutions program agreements set forth the program’s economic terms, including the merchant discount applicable to each promotional finance offering. We typically do not pay fees to our Payment Solutions partners pursuant to any retailer share arrangements, but in some cases we pay a sign-up fee to a partner or provide volume-based rebates on the merchant discount paid by the partner.

Buying Groups and Industry Associations

The programs we have established with buying groups and industry associations, such as the Home Furnishings Association, Jewelers of America and Nationwide Marketing Group, are governed by program agreements under which we make our credit products available to their respective members or dealers, but these agreements generally do not require the members or dealers to offer our products to their customers. Under the terms of the program agreements, buying groups and industry associations generally agree to support and promote the respective programs. These arrangements may include sign-up fees and volume-based incentives paid by us to the groups and their members.

Synchrony-Branded Networks

Our Synchrony-branded networks are focused on specific industries, where we create either company-branded or company and partner-branded private label credit cards that are usable across all participating locations within the industry-specific network. For example, our Synchrony Car Care network, comprised of merchants selling automotive parts, repair services and tires, covers over 1,000,000 locations across the United States, and cards issued may be dual branded with Synchrony Car Care and partners such as Midas, Michelin Tires or Pep Boys. Under the terms of these networks, we establish merchant discounts applicable to each financing offer, and, in some cases, the fees we charge partners for their membership in the network. In addition, we also earn interchange fees through credit card transactions outside of the program network. The Synchrony Car Care network allows for expanded use outside of the program network at certain related merchants, such as gas stations. Similarly, the Synchrony HOME credit card is accepted at hundreds of thousands of home-related retail locations nationwide, including both partner locations and retailers outside of our program network.

Dealer Agreements

For the programs we have established with manufacturers, buying groups, industry associations, industry vertical programs and Synchrony-branded networks described above, we enter into individual agreements with the merchants and dealers that offer our credit products under these programs. These agreements generally are not exclusive and some parties who offer our financing products also offer financing from our competitors. Our agreements generally continue until terminated by either party, with termination typically available to either party at will upon 15 days’ written notice. Our dealer agreements set forth the economic terms associated with the program, including the fees charged to dealers to offer promotional financing, and in some cases, allow us to periodically change the fees we charge.

CareCredit

CareCredit is a leading provider of promotional financing to consumers for health, veterinary and personal care procedures, services and products. CareCredit accounted for $2.3 billion, or 14%, of our total interest and fees on loans for the year ended December 31, 2020. Substantially all of the credit extended in CareCredit is promotional financing.

We offer customers a CareCredit-branded private label credit card that may be used across our network of CareCredit providers and our CareCredit Dual Card offering, along with complementary products such as Pets Best pet insurance. We generate revenue in CareCredit primarily from interest and fees on our loan receivables and from merchant discounts paid by providers to compensate us for all or part of the foregone interest income associated with promotional financing.

CareCredit Partners

The vast majority of our partners are individual and small groups of independent healthcare providers, which includes networks of healthcare practitioners that provide elective and other procedures that generally are not fully covered by insurance. The remainder are primarily national and regional healthcare providers and health-focused retailers, such as pharmacies. At December 31, 2020, we had a network of CareCredit providers and health-focused retailers that collectively have over 250,000 locations. In January 2021, we announced our new program agreement with Walgreens to become the issuer of the first co-branded credit card program for a national health retailer in the United States. We expect to launch this new program in the second half of 2021.


CareCredit interest and fees on loans by specialty Year ended December 31, 2020


CareCredit key relationships

Approximately 185,000 providers across over 250,000 locations at December 31, 2020
Expansive network of independent healthcare providers

National and regional healthcare providers and retailers
Aspen Dental			Heartland Dental
LCA Vision			Mars Petcare
Rite Aid			Walgreens
Professional and other associations
American Dental Association			American Society of Plastic Surgeons
American Veterinary Medical Association

During 2020, over 195,000 locations either processed a CareCredit application or made a sale on a CareCredit credit card. No single CareCredit partner accounted for more than 0.2% of our total interest and fees on loans for the year ended December 31, 2020.

We enter into provider agreements with individual healthcare providers who become part of our CareCredit network. These provider agreements are similar to the dealer agreements that govern our relationships with the merchants and dealers offering our Payment Solutions products in that the agreements are not exclusive and typically may be terminated at will upon 15 days’ notice. Multi-year agreements are in place for larger multi-location relationships across all markets. There are typically no retailer share arrangements with partners in CareCredit.

At December 31, 2020, we had relationships with over 130 professional and other associations (including the American Dental Association and the American Veterinary Medical Association), manufacturers and buying groups, which endorse and promote our credit products to their members. Of these relationships, over 80 were paid endorsements linked to member enrollment in, and volume under, the relevant program.

We screen potential partners using a variety of criteria, including whether the potential provider specializes in one of our approved specialties, carries the appropriate licensing and certifications, and meets our underwriting criteria. We also screen potential partners for reputational issues. We work with professional and other associations, manufacturers, buying groups, industry associations and healthcare consultants to educate their constituents about the products and services we offer. We believe our ability to attract new partners is aided by our customer satisfaction rate, which our research in 2020 showed is 92%. We also approach individual healthcare service providers through direct mail, advertising, and at trade shows.

During the year ended December 31, 2020 and to date, we:

•announced our new partnership with Walgreens discussed above.

•expanded our network through our new partnerships with AdventHealth and Community Veterinary Partners.

•launched other healthcare system partnerships with Lehigh Valley Health Network, St. Luke's University Health Network and Cox Health.

•acquired Allegro Credit, a leading provider of point-of-sale consumer financing for audiology products and dental services.

•renewed our agreements with Aspen Dental, Blue River Petcare, NVA, Vision Group Holdings and West Coast Dental and extended Pets Best's relationship with Progressive.

Our Customers

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Acquiring and Marketing to Retail Card & Payment Solutions Customers

In our Retail Card and Payment Solutions platforms we work directly with our partners using their distribution network, communication channels and customer interactions to market our products to their existing and potential customers. We believe our presence at partners’ points of sale (in-store, online and mobile) locations and our ability to make credit decisions instantly for a customer already predisposed to make a purchase enables us to acquire new customer accounts at a lower cost than issuers of general purpose cards.

To acquire new customers, we collaborate and deeply integrate with our partners and leverage our marketing expertise to create programs promoting our products to creditworthy customers. Frequently, our partners market the availability of credit as part of the advertising for their goods and services. Our marketing programs include marketing offers (e.g., 10% off the customer’s first purchase) and consumer communications delivered through a variety of channels, including in-store signage, online advertising, retailer website placement, associate communication, emails, text messages, direct mail campaigns, advertising circulars, and outside marketing via television, radio, print, and digital marketing (search engine optimization, paid search and personalization). We also employ our proprietary Quickscreen acquisition method to make targeted pre-approved credit offers at the point-of-sale. Our Quickscreen technology allows us to process customer information obtained from our partners through our risk models such that when these customers seek to make payment for goods and services at our partners' points-of-sale, we can offer them credit instantly, if appropriate. Based on our experience, due to the personalized and immediate nature of the offer, Quickscreen significantly outperforms traditional direct-to-consumer pre-approved channels, such as direct mail or email, in response rate and dollar spending.

In Payment Solutions we also market the value of cross-network benefits to our partners. For example, the Synchrony Car Care credit card offers motorists the convenience of one card to pay for comprehensive auto care at thousands of service and parts locations, as well as fuel at gas stations nationwide. In addition, the Synchrony HOME Network, allows customers to finance items from home décor to mattresses to flooring at thousands of participating HOME locations nationwide.

Acquiring and Marketing to CareCredit Customers

We market our products through our network of providers by training them on the advantages of CareCredit and by creating marketing materials for providers to use to promote the program and educate customers. Our training helps our providers learn to discuss payment options during the pre-treatment consultation phase, including the option to apply for a CareCredit credit card and the offer of promotional credit. According to a 2020 survey of our CareCredit customers, 47% indicated they would have postponed or reduced the scope of treatment if financing was not offered by their provider. Consumers can apply for our CareCredit products in the provider’s office or online via the web or mobile device.

As the market continues to evolve, we are increasingly seeing more customers from mobile and internet channels. Consumers are going online to look for information about the types of procedures or care they need, where to receive that care and how to pay for it. As such, we are promoting CareCredit directly to potential and existing customers using digital marketing. Our provider locator, on our website, allows customers to search among the more than 250,000 locations that accept the CareCredit credit card by desired geography and provider type. According to our records, our CareCredit provider locator averaged over 1.5 million searches per month during the year ended December 31, 2020. We believe our partners recognize the locator as an important source of new customer acquisition and information about their practice.

We believe going direct to consumers through digital marketing will have several benefits. Customers will have a better understanding of the types of care they can pay for, the different financing options available and where they can use CareCredit. In addition, whether they choose to apply online or in the provider’s office, once approved, they can move forward with the care they want or need to feel better.

Enterprise Customer Engagement ("ECE") / Analytics

After a customer obtains one of our products, our marketing programs encourage ongoing card usage by communicating the benefits of our products’ value propositions. Examples of such programs include: promotional financing offers, cardholder events, product and partner discounts, dollar-off certificates, account holder sales, reward points and offers, new product announcements and previews, and other specific partner value offerings. These programs are executed through our partners’ and our own (direct to consumer) distribution channels.

Our ECE and data analytics teams help us expand and optimize customer relationships through the building of targeting tools and the deployment of detailed test-and-learn tracking of cardholder responsiveness to these omni-channel marketing campaigns. Leveraging thousands of customer data points curated through customer interactions with Synchrony and accessed through third-party relationships, Synchrony's more than 200 business analysts and data scientists apply sophisticated analytic techniques to create signals and tools allowing customized marketing messages and treatments. For example, if through test and learn, we see cardholders of a certain type consistently click on a banner with a combination of a certain font, color, and message, we will display future marketing messages to these type of customers in a similar manner. This closed loop learning process uses a set of analytics tools to read and react in real time using machine learning algorithms to the customer’s response to these treatments. This example is repeated thousands of times a month across digital and non-digital use cases to constantly maximize campaign response, customer share of wallet, and program profitability.

Our understanding of our Dual Card and general purpose co-branded credit card programs are further enhanced by the collection and analysis of data on customers' spending patterns (merchant category code, online spend, etc.) at other retailers. These additional signals and scores help drive incremental volume for our programs while maximizing return on investment.

Our extensive marketing activities targeted to existing customers have yielded high levels of re-use across both our Payment Solutions and CareCredit sales platforms. During the year ended December 31, 2020, 32% (excluding oil and gas retail partner programs) and 58% of purchase volume across our Payment Solutions platform and CareCredit network, respectively, resulted from repeat use at one or more retailers or providers.

Digital and mobile capabilities

We remain focused on investing in our digital and mobile capabilities, bringing to market new features, channels and experiences for our customers and enhancing our existing digital design and user experience. Our approach continues to be customer and partner-centric to reach our customers in unique ways at home, in store, online or wherever they prefer. Our investment is focused on all aspects of our customer journey through application, purchase and service. We believe these investments are critical to driving growth in our existing programs, including supporting our partners as they adapt to the rapidly evolving environment resulting from the COVID-19 pandemic, and also in securing renewals and winning new programs such as our new co-branded consumer credit cards for Venmo and Verizon.

In 2020, we continued to invest in our digital apply platform (“dApply”) which has been rolled out to all of our partners which enables us to provide a simplified experience for our customers. We have launched capabilities that can securely pre-fill data from multiple sources including leveraging data from our partners, enabling improved fraud prevention and a streamlined customer experience. With more ways to start a new application, such as our direct to device innovation that provides a contactless way for an application to begin at a point-of-sale and complete on a customer’s personal mobile phone, combined with new capabilities such as our SetPay installment product and offering consumers an option for prequalification, the dApply platform continues to be critical in how we engage with our customers. In 2020, digital applications represented approximately 60% of our total applications received.

We have also continued to introduce new ways for our customers to interact with their accounts. We have added multiple new features such as pay as guest, online activation, freeze my account and IVR to text, enabling a customer to seamlessly transition from a customer service phone call to completing the task online. With the changing needs during COVID-19, our investments in contactless digital tools both in-store and online were essential. From our digital card and mobile wallet capabilities, to text-to-apply and mobile account lookup which provides a fast and easy way for a customer to access a digital representation of their card, these features enabled our customers and partners to adapt to the new environment.

Digital account servicing now represents over 65% of all account servicing done by our customers and we continue to invest in capabilities to improve this experience including a complete user experience redesign of our SyPI native app platform. Through our investment in opening our platform to partners via application program interfaces (APIs), we have more than doubled the number of APIs available in our Synchrony Developer Portal. By offering an increasing array of APIs for the credit life-cycle, we are creating opportunities to build new and richer experiences with our partners and in 2020 we launched multiple new experiences with partners integrating our APIs into their digital assets focused on credit applications, rewards and account servicing. We have also added new capabilities during our Venmo product launch, including enhanced cardholder alerts and virtual card capability. This will continue to be a significant strategic focus for Synchrony.

Finally, we have continued to expand the reach of our virtual assistant, Sydney, across our digital platforms and mobile servicing, and deepened her knowledge and ability to respond to the questions and tasks that our customers ask.

Loyalty Programs

Many of the credit rewards loyalty programs we manage provide rewards points, which are redeemable for a variety of products or awards, or merchandise discounts earned by achieving a pre-set spending level on their private label credit card, Dual Card or general purpose co-branded credit card. Other programs include statement credit or cash back rewards. The rewards can be mailed to the cardholder, accessed digitally or may be immediately redeemable at the partner’s store. These loyalty programs are designed to generate incremental purchase volume per customer, while reinforcing the value of the card to the customer and strengthening customer loyalty. We continue to support and integrate into our partners’ loyalty programs which are offered to customers who utilize non-credit payment types such as cash, debit or check. These multi-tender loyalty programs allow our partners to market to an expanded customer base and allow us access to additional prospective cardholders.

Commercial Customers

In addition to our efforts to acquire consumer cardholders, we continue to increase our focus on small to mid-sized commercial customers. We offer these customers private label credit cards and Dual Cards that can be used primarily at our Retail Card partners and are similar to our consumer offerings. We are also increasing our focus on marketing our commercial pay-in-full accounts receivable product that supports a wide range of business customers.

Our Credit Products

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Through our platforms, we offer three principal types of credit products: credit cards, commercial credit products and consumer installment loans. We also offer a debt cancellation product.

The following table sets forth each credit product by type and indicates the percentage of our total loan receivables that are under standard terms only or pursuant to a promotional financing offer at December 31, 2020.


			Promotional Offer
Credit Product	Standard Terms Only		Deferred Interest		Other Promotional		Total
Credit cards	62.4	%	18.0	%	15.5	%	95.9	%
Commercial credit products	1.5		—		—		1.5
Consumer installment loans	—		—		2.6		2.6
Other	—		—		—		—
Total	63.9	%	18.0	%	18.1	%	100.0	%

Credit Cards

Our credit card products are loans we extend through open-ended revolving credit card accounts. We offer the following principal types of credit cards:

Private Label Credit Cards

Private label credit cards are partner-branded credit cards (e.g., Lowe’s or Amazon) or program-branded credit cards (e.g., Synchrony Car Care or CareCredit) that are used primarily for the purchase of goods and services from the partner or within the program network. In addition, in some cases, cardholders may be permitted to access their credit card accounts for cash advances.

Credit under a private label credit card typically is extended either on standard terms only in our Retail Card sales platform, which means accounts are assessed periodic interest charges using an agreed non-promotional fixed and/or variable interest rate, or pursuant to a promotional financing offer in our Payment Solutions and CareCredit sales platforms, involving deferred interest, no interest or reduced interest during a set promotional period. Promotional periods typically range between six and 60 months, but we may agree to longer terms with the partner. In almost all cases, we receive a merchant discount from our partners to compensate us for all or part of the foregone interest income associated with promotional financing. The terms of these promotions vary by partner, but generally the longer the deferred interest, reduced interest or interest-free period, the greater the partner’s merchant discount. Some offers permit customers to pay for a purchase in equal monthly payments with no interest or at a reduced interest rate, rather than deferring or delaying interest charges. For our deferred interest products, approximately 80% of customer transactions are typically paid off before interest is assessed. In CareCredit, standard rate financing generally applies to charges under $200.

We typically do not charge interchange or other fees to our partners when a customer uses a private label credit card to purchase our partners’ goods and services through our payment system.

Most of our private label credit card business is in the United States. For some of our partners who have locations in Canada, we also support the issuance and acceptance of private label credit cards at their locations in Canada and from customers in Canada.

Dual Cards and General Purpose Co-Branded Cards

Our patented Dual Cards are credit cards that function as private label credit cards when used to purchase goods and services from our partners, and as general purpose credit cards when used to make purchases from other retailers wherever cards from those card networks are accepted or for cash advance transactions. We currently issue Dual Cards for use on the MasterCard and Visa networks and we have the potential capability to issue Dual Cards for use on the American Express and Discover networks.

We have been granted two U.S. patents relating to the process by which our Dual Cards function as a private label credit card when used to make purchases from our partners and function as a general purpose credit card when used on the systems of other credit card associations.

We also offer general purpose co-branded credit cards that do not function as private label credit cards, as well as, in limited circumstances, a Synchrony-branded general purpose credit card.

Credit extended under our Dual Cards and general purpose co-branded credit cards typically is extended on standard terms only. Dual Cards and general purpose co-branded credit cards are offered across all of our sales platforms. At December 31, 2020, we offered either Dual Cards or general purpose co-branded credit cards through 22 ongoing credit partners and our CareCredit Dual Card, of which the majority are Dual Cards. We expect to continue to increase the number of partner programs that offer Dual Cards or general purpose co-branded credit cards and seek to increase the portion of our loan receivables attributable to these products. Consumer Dual Cards and co-branded cards totaled 24% of our total loan receivables portfolio at December 31, 2020.

Charges using a Dual Card or general purpose co-branded credit card generate interchange income for us in connection with purchases made by cardholders other than in-store or online from that partner.

We currently do not issue Dual Cards or general purpose co-branded credit cards in Canada.

Terms and Conditions

As a general matter, the financial terms and conditions governing our credit card products vary by program and product type and change over time, although we seek to standardize the non-financial provisions consistently across all products. The terms and conditions of our credit card products are governed by a cardholder agreement and applicable laws and regulations.

We assign each card account a credit limit when the account is initially opened. Thereafter, we may increase or decrease individual credit limits from time to time, at our discretion, based primarily on our evaluation of the customer’s creditworthiness and ability to pay.

For the vast majority of accounts, periodic interest charges are calculated using the daily balance method, which results in daily compounding of periodic interest charges, subject to, at times, a grace period on new purchases. Cash advances are not subject to a grace period, and some credit card programs do not provide a grace period for promotional purchases. In addition to periodic interest charges, we may impose other charges and fees on credit card accounts, including, as applicable and provided in the cardholder agreement, cash advance transaction fees and late fees where a customer has not paid at least the minimum payment due by the required due date.

Typically, each customer with an outstanding debit balance on his or her credit card account must make a minimum payment each month. A customer may pay the total amount due at any time without penalty. We also may enter into arrangements with delinquent customers to extend or otherwise change payment schedules and to waive interest charges and/or fees.

Commercial Credit Products

We offer private label cards and Dual Cards for commercial customers that are similar to our consumer offerings. We also offer a commercial pay-in-full accounts receivable product to a wide range of business customers. We offer our commercial credit products primarily through our Retail Card platform to the commercial customers of our Retail Card partners.

Installment Loans

In Payment Solutions, we originate installment loans to consumers (and a limited number of commercial customers) in the United States, primarily in the power products market (motorcycles, ATVs and lawn and garden). Installment loans are closed-end credit accounts where the customer pays down the outstanding balance in installments. The terms of our installment loans are governed by customer agreements and applicable laws and regulations.

Installment loans are assessed periodic finance charges using fixed interest rates. In addition to periodic finance charges, we may impose other charges and fees on loan accounts, including late fees where a customer has not made the required payment by the required due date and returned payment fees.

Debt Cancellation Products

We offer a debt cancellation product to our credit card customers via online, mobile and, on a limited basis, direct mail. Customers who choose to purchase this product are charged a monthly fee based on their ending balance on each billing statement. In return, the Bank will cancel all or a portion of a customer’s credit card balance in the event of certain qualifying life events.

Direct-to-Consumer Banking

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Through the Bank, we offer our customers a range of FDIC-insured deposit products. The Bank also takes brokered deposits through third-party securities brokerage firms that offer our FDIC-insured deposit products to their customers. At December 31, 2020, we had $62.8 billion in deposits, $52.1 billion of which were direct deposits and $10.7 billion of which were brokered deposits. At December 31, 2020, deposits represented 80% of our total funding sources. During 2020, direct deposits were received from approximately 468,000 customers that had a total of approximately 900,000 accounts. Retail customers accounted for substantially all of our direct deposits at December 31, 2020. The Bank had a 76% retention rate on certificates of deposit balances up for renewal for the year ended December 31, 2020. FDIC insurance is provided for our deposit products up to applicable limits.

We have significantly expanded our online direct banking operations in recent years and our deposit base serves as a source of stable and diversified low-cost funding for our credit activities. Our online platform is highly scalable allowing us to expand without having to rely on a traditional “brick and mortar” branch network. During 2020 we continued to make investments in our servicing and digital platforms to expand features available for self-service and improve the user experience including the integration of the Synchrony Mastercard product.

We continue to grow our direct banking operations and believe we are well-positioned to continue to benefit from the consumer-driven shift from branch banking to direct banking. According to the 2020 American Bankers Association survey, approximately 80% of customers primarily use direct channels (internet, mail, phone and mobile) to manage their bank accounts, a 3% rise since the outbreak of COVID-19 pandemic.

Our deposit products include certificates of deposit, IRAs, money market accounts and savings accounts. We market our deposit products through multiple channels including digital and print. Customers can apply for, fund, and service their deposit accounts online or via phone. We have dedicated banking representatives within our call centers to service deposit accounts. Fiserv, Inc. ("Fiserv") provides the core banking platform for our online retail deposits including a customer-facing account opening and servicing platform.

To attract new deposits and retain existing ones, we intend to introduce new deposit products, enhancements to our existing products, and deliver new capabilities. This may include the introduction of checking accounts, overdraft protection lines of credit, bill payment and person-to-person payment features, and Synchrony-branded debit cards. Our focus on deposit-taking and related branding efforts will also enable us to offer other branded direct-banking products more efficiently in the future.

We seek to differentiate our deposit product offerings from our competitors on the basis of brand, reputation, convenience, customer service and value. Our deposit products emphasize reliability, trust, security, convenience and attractive rates. We offer rewards to customers based on their tenure or balance amounts, including reduced fees, travel offers and concierge telephone support.

Credit Risk Management

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Credit risk management is a critical component of our management and growth strategy. Credit risk refers to the risk of loss arising from customer default when customers are unable or unwilling to meet their financial obligations to us. Our credit risk arising from credit products is generally highly diversified across approximately 132 million open accounts at December 31, 2020, without significant individual exposures. We manage credit risk primarily according to customer segments and product types.

Customer Account Acquisition

We have developed programs to promote credit with each of our partners and have developed varying credit decision guidelines for the different partners. We originate credit accounts through several different channels, including in-store, mail, internet, mobile, telephone and pre-approved solicitations. In addition, we have, and may in the future, acquire accounts that were originated by third parties in connection with establishing programs with new partners.

Regardless of the channel, in making the initial credit approval decision to open a credit card or other account or otherwise grant credit, we follow a series of credit risk and underwriting procedures. In most cases, when applications are made in-store or digitally, the process is fully automated and applicants are notified of our credit decision immediately. We generally obtain certain information provided by the applicant and obtain a credit bureau report from one of the major credit bureaus. The credit report information we obtain is electronically transmitted into industry scoring models and our proprietary scoring models developed to calculate a credit score. The credit risk management team determines in advance the qualifying credit scores and initial credit line assignments for each portfolio and product type. We periodically analyze performance trends of accounts originated at different score levels as compared to projected performance and adjust the minimum score or the opening credit limit to manage credit risk.

We also apply additional application screens based on various inputs, including credit bureau information, alternative data, our previous experience with the customer and information provided by our partner, to help identify additional factors, such as potential fraud and prior bankruptcies, before qualifying the application for approval. We compare applicants’ names against the Specially Designated Nationals list maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), as well as screens that account for adherence to USA PATRIOT Act of 2001 (the “Patriot Act”) and Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “CARD Act”) requirements, including ability to pay requirements.

We also use pre-approved account solicitations for certain programs. Potential applicants are pre-screened using information provided by our partner or obtained from outside lists, and qualified individuals receive a pre-approved credit offer by mail or email.

Acquired Portfolio Evaluation

Our risk management team evaluates each portfolio that we acquire in connection with establishing programs with new partners to ensure the portfolio satisfies our credit risk guidelines. As part of this review, we receive data on the third-party accounts and loans, which allows us to assess the portfolio on the basis of certain core characteristics, such as historical performance of the assets and distributions of credit and loss information. In addition, we benchmark potential portfolio acquisitions against our existing programs to assess relative current and projected risks. Finally, our risk management team must approve the acquisition, taking into account the results of our risk assessment process. Once assets are migrated to our systems, our account management protocols will apply immediately as described below under “—Customer Account Management,” “—Credit Authorizations of Individual Transactions” and “—Collections.”

Customer Account Management

We regularly assess the credit risk exposure of our customer accounts. This ongoing assessment includes information relating to the customer’s performance with respect to their account with us, as well as information from credit bureaus relating to the customer’s broader credit performance. To monitor and control the quality of our loan portfolio (including the portion of the portfolio originated by third parties), we use behavioral scoring models that we have developed to score each active account on its monthly cycle date. Proprietary risk models, together with the credit scores obtained on each active account no less than quarterly, are an integral part of our credit decision-making process. Depending on the duration of the customer’s account, risk profile and other performance metrics, the account may be subject to a range of account actions, including limits on transaction authorization and increases or decreases in purchase and cash credit limits.

Credit Authorizations of Individual Transactions

Once an account has been opened, when a credit card is used to make a purchase in-store at one of our partners’ locations or online, point-of-sale terminals or online sites have an online connection with our credit authorization system, which allows for real-time updating of accounts. Each potential sales transaction is passed through a transaction authorization system, which considers a variety of behavior and risk factors to determine whether the transaction should be approved or declined, and whether a credit limit adjustment is warranted.

Fraud Investigation

We provide follow up and research with respect to different types of fraud such as fraud rings, new account fraud and transactional fraud. We have developed a proprietary fraud model to identify new account fraud and deployed tools that help identify transaction purchase behavior outside a customer’s established pattern. Our proprietary model is also complemented by externally sourced models and tools used across the industry to better identify fraud and protect our customers. We also are continuously implementing new and improved technologies to detect and prevent fraud.

Collections

All monthly billing statements of accounts with past due amounts include a request for payment of these amounts. Collections personnel generally initiate contact with customers within 30 days after any portion of their balance becomes past due. The nature and the timing of the initial contact, typically a personal call, e-mail, text message or letter, are determined by a review of the customer’s prior account activity and payment habits.

We re-evaluate our collection efforts and consider the implementation of other techniques, including internal collection activities, use of external vendors and the sale of debt to third-party buyers, as a customer becomes increasingly delinquent. We limit our exposure to delinquencies through controls within the transaction authorization processes, the imposition of credit limits and criteria-based account suspension and revocation processes. In certain situations, we may enter into arrangements to extend or otherwise change payment schedules, decrease interest rates and/or waive fees to aid customers experiencing financial difficulties in their efforts to become current on their obligations to us.

Customer Service

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Customer service is an important feature of our relationship with our partners. Our customers can contact us via phone, mail, email, eService and eChat. During the year ended December 31, 2020, we handled over 275 million inquiries.

We assign a dedicated toll-free customer service phone number to each of our Retail Card programs. Our Payment Solutions customers access customer service through one general purpose toll-free customer service phone number (except for a few large Payment Solutions programs, which have dedicated toll-free numbers). Our CareCredit platform has its own, dedicated toll-free customer service phone number. We also have dedicated toll-free customer service phone numbers for our deposit business.

We service all programs through our nine domestic geographic hubs and three off-shore call centers. We blend domestic and off-shore locations as an important part of our servicing strategy, to maintain service availability beyond normal work hours in the United States and to seek optimal costs. Customer service for cards issued to customers in Canada is supported through agents based in the United States.

Given the nature of our business and the high volume of calls, we maintain several centers of excellence to ensure the quality of our customer service across all of our sites. Examples of these centers of excellence include back office, quality assurance, customer experience, training, workforce and capacity planning, surveillance and process control.

Production Services

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Our production services organization oversees a number of services, including:

•payment processing (more than 600 million paper and electronic payments in 2020);

•embossing and mailing credit cards (more than 40 million cards in 2020);

•printing and mailing and eService delivery of credit card statements (more than 700 million paper and electronic statements in 2020); and

•other letters mailed or sent electronically (more than 90 million in 2020).

We utilize third-party providers for certain production services. U.S. credit card statement printing and mailing, card embossing and mailing and letter production and mailing for customers are provided through outsourced services with Fiserv. Fiserv also produces our statements and other mailings for deposit customers. We also utilize a third-party provider for our paper payment processing services. While these services are outsourced, we monitor and maintain oversight of these other activities.

Card production embossing, mailing, statement printing and mailing services related to cards issued to customers in Canada are outsourced to Canadian suppliers.

Technology and Data Security

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Products and Services

We leverage information technology to deliver products and services that meet the needs of our customers and partners and enables us to operate our business efficiently. The integration of our technology with our partners is at the core of our value proposition, enabling, among other things, customers to “apply and buy” at the point of sale, and many of our partners to settle transactions directly with us without an interchange fee. A key part of our strategic focus is the continued development of innovative, efficient, flexible technology and operational platforms to support marketing, risk management, account acquisition and account management, customer service, and new product innovation and development. We believe that the continued investment in and development of these platforms is an important part of our efforts to increase our competitive capabilities, reduce costs, improve quality and provide faster, more flexible technology services. Therefore, we continuously review capabilities and develop or acquire systems, processes and competencies to meet our business needs.

As part of our continuous efforts to enhance our technological capabilities, we may either develop these capabilities internally or in partnership with third-party providers. Our internal approach involves deployment of cross-functional product teams, often in collaboration with our partners, focused on driving rapid delivery of in-house product innovation and development, and the commercialization of new products. In addition, at times we also partner with third-party providers to help us deliver systems and operational infrastructure based on strategies and, in some cases, architecture, designed by us. We leverage Fiserv for our credit card transaction processing and production and our retail banking operations.

Data Security

The protection and security of financial and personal information of our consumers is one of our highest priorities. We have implemented a comprehensive information security program that includes administrative, technical and physical safeguards that we believe provide an appropriate level of protection to maintain the confidentiality, integrity, and availability of our Company's and our customers' information. This includes protecting against any known or evolving threats to the security or integrity of customer records and information, and against unauthorized access to or use of customer records or information.

Our information security program is continuously adapting to an evolving landscape of emerging threats and available technology. Through data gathering and evaluation of emerging threats from internal and external incidents and technology investment, security controls are adjusted on a continuous basis. We work directly with our partners on an ongoing basis by sharing cyber intelligence and facilitating awareness and communications of events outside of the Company.

We have developed a security strategy and implemented multiple layers of controls embedded throughout our technology environment that establish multiple control points between threats and our assets. Our security program is designed to provide oversight of third parties who store, process or have access to sensitive data, and we require the same level of protection from such third-party service providers. We evaluate the effectiveness of the key security controls through ongoing assessment and measurement.

In addition, we identify risks that may threaten customer information and utilize both internal and external resources to perform a variety of vulnerability and penetration testing on the platforms, systems and applications used to provide our products and services. We employ backup and disaster recovery procedures for all the systems that are used for storing, processing and transferring customer information, and we periodically test and validate our disaster recovery plans. Further, we regularly utilize independent assessors to evaluate the appropriateness of our overall program. We are compliant with the Payment Card Industry (PCI) Data Security Standard (DSS).

Intellectual Property

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We use a variety of methods, such as trademarks, patents, copyrights and trade secrets, to protect our intellectual property, including our brand, "Synchrony." We also place appropriate restrictions on our proprietary information to control access and prevent unauthorized disclosures. Our brands are important assets, and we take steps to protect the value of these assets and our reputation.

Human Capital

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At Synchrony, people power our business, and our success depends, in large part, on our ability to recruit, develop, motivate and retain employees with the skills to execute our long-term strategy. In 2020, we significantly revised our approach to human capital management in response to the COVID-19 pandemic. Starting in March 2020, we equipped nearly all employees to work from home, including our thousands of customer service agents in call centers, our agile developers in our innovation labs and our senior executives in corporate headquarters. We instituted safety protocols and procedures for the small number of essential employees who continued to work at our physical locations. We have also changed our overall approach to getting work done by adopting a “hub” model that will enable employees across job roles and levels to work from home when they want (or full-time) and visit a hub — e.g. a co-working space, Synchrony office, university space or other gathering spots — when they need to meet face-to-face. Once the pandemic is over, physical hubs will be used as cultural and innovation centers by hosting events, town halls, agile sprints, networking and other important business activities, allowing us to retain the human, personal connection of a traditional workplace while providing employees greater flexibility.

At December 31, 2020 we had over 16,500 full time employees. Our global workforce has decreased slightly compared to the prior year as we have focused on efficiencies, such as hiring freezes, in response to the COVID-19 pandemic. In January 2021 we further reduced headcount through a significant enhanced pandemic severance program resulting in headcount reductions that were more than 50% voluntary and provided a minimum of 6 months of pay and benefits. The enhanced voluntary and involuntary severance plan helped support our workforce during a time of economic uncertainty resulting from the pandemic. At December 31, 2020, our global workforce was 56.6% female and 43.4% male. In the United States, ethnicity of our workforce was 55.6% White, 19.8% Black, 12.3% Hispanic, 7.7% Asian, 3.3% two or more races, 0.6% Native American, 0.1% Native Hawaiian or Pacific Islander and 0.6% that did not list ethnicity.

At Synchrony, diversity and inclusion are core to our corporate culture. In 2020, we embraced our responsibility to further integrate diversity and inclusion into our long-term business strategy. To drive progress over the long term, we treat diversity and inclusion as important business priorities, with (i) new board-approved governance rules, imperatives, and accountability mechanisms to measure results and (ii) a revised annual incentive program for 2021 that incorporates diversity factors when determining payouts. We also created a senior-level committee led by our President, Chief Diversity Officer, and others, charged with developing an enterprise-wide strategy, setting measurable goals, and providing progress reports to our board and employees across all areas of the business. We used data analytics to identify gaps in our hiring and promotion processes. As a result, we are putting more focus on the hiring, development, and progression of underrepresented minorities, with an emphasis on Black and Hispanic talent. Among other actions, we have tied leaders’ performance metrics to diversity factors, provided for diverse candidate slates for senior roles, and launched a new leadership development program designed to advance diverse employees.

Regulation

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Our business, including our relationships with our customers, is subject to regulation, supervision and examination under U.S. federal, state and foreign laws and regulations. These laws and regulations cover all aspects of our business, including lending practices, treatment of our customers, safeguarding deposits, customer privacy and information security, capital structure, liquidity, dividends and other capital distributions, transactions with affiliates, and conduct and qualifications of personnel.

As a savings and loan holding company and financial holding company, Synchrony is subject to regulation, supervision and examination by the Federal Reserve Board. As a large provider of consumer financial services, we are also subject to regulation, supervision and examination by the CFPB.

The Bank is a federally chartered savings association. As such, the Bank is subject to regulation, supervision and examination by the Office of the Comptroller of the Currency of the U.S. Treasury (the “OCC”), which is its primary regulator, and by the CFPB. In addition, the Bank, as an insured depository institution, is supervised by the FDIC. For a discussion of the specific regulations related to our business see “Regulation—Regulation Relating to Our Business” of this Form 10-K Report.

Competition

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Our industry continues to be highly competitive. We compete for relationships with partners in connection with retaining existing or establishing new consumer credit programs. Our primary competitors for partners include major financial institutions such as Alliance Data Systems, American Express, Capital One, JPMorgan Chase, Citibank, TD Bank and Wells Fargo, and to a lesser extent, financial technology companies and potential partners’ own in-house financing capabilities. We compete for partners on the basis of a number of factors, including program financial and other terms, underwriting standards, marketing expertise, service levels, product and service offerings (including incentive and loyalty programs), technological capabilities and integration, brand and reputation. In addition, some of our competitors for partners have a business model that allows for their partners to manage underwriting (e.g., new account approval), customer service and collections, and other core banking responsibilities that we retain.

We also compete for customer usage of our credit products. Consumer credit provided, and credit card payments made, using our cards constitute only a small percentage of overall consumer credit provided and credit card payments in the United States. Consumers have numerous financing and payment options available to them. As a form of payment, our products compete with cash, checks, debit cards, general purpose credit cards (Visa and MasterCard, American Express and Discover Card), various forms of consumer installment loans, other private-label card brands, and, to a certain extent, prepaid cards. In the future, we expect our products may face increased competitive pressure to the extent that our products are not, or do not continue to be, accepted in, or compatible with digital wallet technologies such as Apple Pay, Samsung Pay, Android Pay and other similar technologies. We may also face increased competition from current competitors or others who introduce or embrace disruptive technology that significantly changes the consumer credit and payment industry. We compete for customers and their usage of our deposit products, and to minimize transfers to competitors of our customers’ outstanding balances, based on a number of factors, including pricing (interest rates and fees), product offerings, credit limits, incentives (including loyalty programs) and customer service. Some of our competitors provide a broader selection of services, including home and automobile loans, debit cards and bank branch ATM access, which may position them better among customers who prefer to use a single financial institution to meet all of their financial needs. In addition, some of our competitors are substantially larger than we are, may have substantially greater resources than we do or may offer a broader range of products and services than we do. Moreover, some of our competitors, including new and emerging competitors in the digital and mobile payments space, are not subject to the same regulatory requirements or legislative scrutiny to which we are subject. Non-bank providers of pay-over-time solutions, such as Affirm, Afterpay and others, extend consumer credit-like offerings but do not face the same restrictions, such as capital requirements and other regulatory requirements, as banks which also could place us at a competitive disadvantage.

In our retail deposits business, we have acquisition and servicing capabilities similar to other direct-banking competitors. We compete for deposits with traditional banks, and in seeking to grow our direct-banking business, we compete with other banks that have direct-banking models similar to ours, such as Ally Financial, American Express, Capital One 360 (ING), CIT, Citi, Citizens Bank, Discover, Marcus by Goldman Sachs and PurePoint. Competition among direct banks is intense because online banking provides customers the ability to quickly and easily deposit and withdraw funds and open and close accounts in favor of products and services offered by competitors.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. For a discussion and analysis of our financial condition and results of operations comparing 2019 vs. 2018, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019 (our “2019 Form 10-K”). The discussion below contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. See “Cautionary Note Regarding Forward-Looking Statements.”

Results of Operations for the Three Years Ended December 31, 2020

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Key Earnings Metrics


Net earnings $ in millions						Net interest income $ in millions


Net interest margin % of average interest-earning assets						Efficiency Ratio "Other expense" as a % of "NII, after RSA" plus "Other income"

Growth Metrics


Purchase volume $ in billions						Loan receivables $ in billions


Average active accounts in millions						Interest and fees on loans $ in millions

Asset Quality Metrics


30+ days past due % of period-end loan receivables						Net charge-offs % of average loan receivables including held for sale


90+ days past due % of period-end loan receivables						Allowance for credit losses(1) % of period-end loan receivables

_____________________

(1)Allowance for credit losses reflects adoption of CECL on January 1, 2020, which included a $3.0 billion increase in reserves upon adoption.

Capital and Liquidity


Capital ratios Common equity Tier1 - Basel III						Liquidity Liquid assets and undrawn credit facilities $ in billions

Highlights for Year Ended December 31, 2020

Below are highlights of our performance for the year ended December 31, 2020 compared to the year ended December 31, 2019, as applicable, except as otherwise noted.

•Net earnings decreased 63.0% to $1.4 billion for the year ended December 31, 2020, primarily driven by lower net interest income and higher provision for credit losses, partially offset by a decrease in retailer share arrangements and other expense. These changes were primarily due to the following key factors:

◦impact of COVID-19 on purchase volume and loan receivables at our partners and increases to our allowance for credit losses.

◦the effects from the sale of the Walmart consumer portfolio in 2019, including the prior year impact from reductions in reserves of loan losses of $857 million after-tax.

◦increase in provision for credit losses attributable to applying the CECL guidance as compared to the prior accounting guidance of $215 million after-tax.

•We adopted the CECL accounting guidance in January 2020 and recorded an increase to our allowance for credit losses of $3.0 billion. In addition, the increase in provision for credit losses for the year ended December 31, 2020 included $285 million, or $215 million after-tax, attributable to applying the CECL guidance as compared to the prior accounting guidance.

•Loan receivables decreased 6.1% to $81.9 billion at December 31, 2020 compared to December 31, 2019, primarily driven by lower purchase volume and a decrease in average active accounts due to the impact of COVID-19.

•Net interest income decreased 14.3% to $14.4 billion for the year ended December 31, 2020, primarily due to a decrease in interest and fees on loans related to the Walmart consumer portfolio sale and the impact of COVID-19, partially offset by a decrease in interest expense reflecting lower benchmark interest rates.

•Retailer share arrangements decreased 5.5% to $3.6 billion for the year ended December 31, 2020, reflecting the impact of COVID-19 on program performance.

•Over-30 day loan delinquencies as a percentage of period-end loan receivables decreased 137 basis points to 3.07% at December 31, 2020 from 4.44% at December 31, 2019, and our net charge-off rate decreased 107 basis points to 4.58% for the year ended December 31, 2020.

•Provision for credit losses increased by $1.1 billion, or 27.0%, for the year ended December 31, 2020, primarily driven by the effects of the prior year sale of the Walmart consumer portfolio and a higher reserve build in the current year, partially offset by lower net charge-offs. The higher reserve build reflects the projected impact of COVID-19 and the increase attributable to CECL discussed above. The prior year reductions in reserves for credit losses related to the Walmart consumer portfolio totaled $1.1 billion. Our allowance coverage ratio (allowance for credit losses as a percentage of end of period loan receivables) increased to 12.54% at December 31, 2020, as compared to 6.42% at December 31, 2019, primarily due to the impact of the CECL implementation and impacts from COVID-19.

•Other expense decreased by $190 million, or 4.5%, for the year ended December 31, 2020, primarily driven by the cost reductions related to the sale of the Walmart consumer portfolio, lower professional fees, lower purchase volume and average active accounts, and reductions in certain discretionary spend, partially offset by a restructuring charge of $87 million and higher operational losses.

•At December 31, 2020, deposits represented 80% of our total funding sources. Total deposits decreased 3.6% to $62.8 billion at December 31, 2020, compared to December 31, 2019.

•During the year ended December 31, 2020, we declared and paid cash dividends on our Series A 5.625% non-cumulative preferred stock of $56.40 per share, or $42 million.

•During the year ended December 31, 2020, we repurchased $1.0 billion of our outstanding common stock, and declared and paid cash dividends of $0.88 per common share, or $520 million. In January 2021, we announced that the Board of Directors approved a new share repurchase program of up to $1.6 billion through December 31, 2021, beginning in the first quarter, subject to the Company's capital plan, market conditions and other factors, including regulatory restrictions and required approvals, if any.

2020 Partner Agreements

•In our Retail Card sales platform, we:

•launched new partnerships with Harbor Freight Tools, Venmo and Verizon.

•extended our program agreements with Google and Sam's Club.

•In our Payment Solutions sales platform, we:

▪announced our new partnerships with:

◦Adorama, Club Champion, Doosan Bobcat, HiSun, Levin Furniture and Mattress, Modani Furniture and Piaggio.

•extended our program agreements with:

▪completed the sale of loan receivables associated with our program agreement with Yamaha.

•In our CareCredit sales platform, we:

▪announced our new partnership with Walgreens.

▪expanded our network through our new partnerships with AdventHealth and Community Veterinary Partners.

▪launched other healthcare system partnerships with Lehigh Valley Health Network, St. Luke's University Health Network and Cox Health.

▪acquired Allegro Credit, a leading provider of point-of-sale consumer financing for audiology products and dental services.

▪renewed our agreements with Aspen Dental, Blue River Petcare, NVA, Vision Group Holdings and West Coast Dental and extended Pets Best's relationship with Progressive.

Information About Our Executive Officers and Board of Directors

•On January 12, 2021, as part of a planned succession process, the Company announced the following events, each effective April 1, 2021:

•Margaret Keane, 61, Synchrony’s Chief Executive Officer (“CEO”), will transition roles from CEO to Executive Chair of the Board.

•Brian Doubles, 45, Synchrony’s President, will succeed Ms. Keane to become President and CEO, and will join the Board as a director.

•Rick Hartnack, 75, Non-Executive Chair of the Board, will retire.

•Jeffrey Naylor, 62, will become Lead Independent Director of the Board.

Other Financial and Statistical Data

The following table sets forth certain other financial and statistical data for the periods indicated.


At and for the years ended December 31 ($ in millions)	2020			2019			2018
Financial Position Data (Average):
Loan receivables, including held for sale	$	80,138		$	88,649		$	83,304
Total assets	$	97,738		$	105,677		$	99,568
Deposits	$	64,061		$	65,036		$	59,498
Borrowings	$	16,846		$	21,251		$	21,951
Total equity	$	12,333		$	14,917		$	14,386
Selected Performance Metrics:
Purchase volume(1)(2)	$	139,084		$	149,411		$	140,657
Retail Card	$	107,018		$	114,440		$	107,685
Payment Solutions	$	22,041		$	23,880		$	22,808
CareCredit	$	10,025		$	11,091		$	10,164
Average active accounts (in thousands)(2)(3)	67,131			75,721			73,847
Net interest margin(4)	14.29		%	15.78		%	15.97		%
Net charge-offs	$	3,668		$	5,005		$	4,692
Net charge-offs as a % of average loan receivables, including held for sale	4.58		%	5.65		%	5.63		%
Allowance coverage ratio(5)	12.54		%	6.42		%	6.90		%
Return on assets(6)	1.4		%	3.5		%	2.8		%
Return on equity(7)	11.2		%	25.1		%	19.4		%
Equity to assets(8)	12.62		%	14.12		%	14.45		%
Other expense as a % of average loan receivables, including held for sale	5.06		%	4.79		%	4.92		%
Efficiency ratio(9)	36.3		%	31.9		%	30.8		%
Effective income tax rate	22.9		%	23.3		%	23.4		%
Selected Period End Data:
Loan receivables	$	81,867		$	87,215		$	93,139
Allowance for credit losses	$	10,265		$	5,602		$	6,427
30+ days past due as a % of period-end loan receivables(10)	3.07		%	4.44		%	4.76		%
90+ days past due as a % of period-end loan receivables(10)	1.40		%	2.15		%	2.29		%
Total active accounts (in thousands)(2)(3)	68,540			75,471			80,339

__________________

(1)Purchase volume, or net credit sales, represents the aggregate amount of charges incurred on credit cards or other credit product accounts less returns during the period.

(2)Includes activity and accounts associated with loan receivables held for sale.

(3)Active accounts represent credit card or installment loan accounts on which there has been a purchase, payment or outstanding balance in the current month.

(4)Net interest margin represents net interest income divided by average interest-earning assets.

(5)Allowance coverage ratio represents allowance for credit losses divided by total period-end loan receivables.

(6)Return on assets represents net earnings as a percentage of average total assets.

(7)Return on equity represents net earnings as a percentage of average total equity.

(8)Equity to assets represents average equity as a percentage of average total assets.

(9)Efficiency ratio represents (i) other expense, divided by (ii) sum of net interest income, plus other income, less retailer share arrangements.

(10)Based on customer statement-end balances extrapolated to the respective period-end date.

Average Balance Sheet

The following table sets forth information for the periods indicated regarding average balance sheet data, which are used in the discussion of interest income, interest expense and net interest income that follows.


	2020						2019						2018
Years ended December 31 ($ in millions)	Average Balance		Interest Income / Expense		Average Yield / Rate(1)		Average Balance		Interest Income/ Expense		Average Yield / Rate(1)			Average Balance		Interest Income/ Expense		Average Yield / Rate(1)
Assets
Interest-earning assets:
Interest-earning cash and equivalents(2)	$	13,301	$	53	0.40	%	$	12,320	$	258	2.09	%		$	11,059	$	207	1.87	%
Securities available for sale	7,367		64		0.87	%	5,464		127		2.32	%		6,566		137		2.09	%

Loan receivables, including held for sale(3):
Credit cards	77,115		15,672		20.32	%	85,334		18,384		21.54	%		80,219		17,342		21.62	%
Consumer installment loans	1,733		168		9.69	%	1,963		182		9.27	%		1,698		156		9.19	%
Commercial credit products	1,231		108		8.77	%	1,306		137		10.49	%		1,333		144		10.80	%
Other	59		2		3.39	%	46		2		4.35	%		54		2		3.70	%
Total loan receivables, including held for sale	80,138		15,950		19.90	%	88,649		18,705		21.10	%		83,304		17,644		21.18	%
Total interest-earning assets	100,806		16,067		15.94	%	106,433		19,090		17.94	%		100,929		17,988		17.82	%
Non-interest-earning assets:
Cash and due from banks	1,488						1,327							1,224
Allowance for credit losses	(9,488)						(5,902)							(5,900)
Other assets	4,932						3,819							3,315
Total non-interest-earning assets	(3,068)						(756)							(1,361)
Total assets	$	97,738					$	105,677						$	99,568
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts	$	63,755	$	1,094	1.72	%	$	64,756	$	1,566	2.42	%		$	59,216	$	1,186	2.00	%
Borrowings of consolidated securitization entities	8,675		237		2.73	%	11,941		358		3.00	%		12,694		344		2.71	%

Senior unsecured notes	8,171		334		4.09	%	9,310		367		3.94	%		9,257		340		3.67	%

Total interest-bearing liabilities	80,601		1,665		2.07	%	86,007		2,291		2.66	%		81,167		1,870		2.30	%
Non-interest-bearing liabilities:
Non-interest-bearing deposit accounts	306						280							282
Other liabilities	4,498						4,473							3,733
Total non-interest-bearing liabilities	4,804						4,753							4,015
Total liabilities	85,405						90,760							85,182
Equity
Total equity	12,333						14,917							14,386
Total liabilities and equity	$	97,738					$	105,677						$	99,568
Interest rate spread(4)					13.87	%					15.28	%						15.52	%
Net interest income			$	14,402					$	16,799						$	16,118
Net interest margin(5)					14.29	%					15.78	%						15.97	%

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(1)Average yields/rates are based on total interest income/expense over average balances.

(2)Includes average restricted cash balances of $475 million, $754 million and $512 million for the years ended December 31, 2020, 2019 and 2018, respectively.

(3)Interest income on loan receivables includes fees on loans of $2.2 billion, $2.8 billion and $2.7 billion for the years ended December 31, 2020, 2019 and 2018, respectively.

(4)Interest rate spread represents the difference between the yield on total interest-earning assets and the rate on total interest-bearing liabilities.

(5)Net interest margin represents net interest income divided by average total interest-earning assets.

The following table sets forth the amount of changes in interest income and interest expense due to changes in average volume and average yield/rate. Variances due to changes in both average volume and average yield/rate have been allocated between the average volume and average yield/rate variances on a consistent basis based upon the respective percentage changes in average volume and average yield/rate.


	2020 vs. 2019						2019 vs. 2018
	Increase (decrease) due to change in:						Increase (decrease) due to change in:
($ in millions)	Average Volume		Average Yield / Rate		Net Change		Average Volume		Average Yield / Rate		Net Change
Interest-earning assets:
Interest-earning cash and equivalents	$	19	$	(224)	$	(205)	$	25	$	26	$	51
Securities available for sale	34		(97)		(63)		(24)		14		(10)
Loan receivables, including held for sale:
Credit cards	(1,708)		(1,004)		(2,712)		1,106		(64)		1,042
Consumer installment loans	(22)		8		(14)		25		1		26
Commercial credit products	(8)		(21)		(29)		(3)		(4)		(7)
Other	—		—		—		—		—		—
Total loan receivables, including held for sale	(1,738)		(1,017)		(2,755)		1,128		(67)		1,061
Change in interest income from total interest-earning assets	$	(1,685)	$	(1,338)	$	(3,023)	$	1,129	$	(27)	$	1,102

Interest-bearing liabilities:
Interest-bearing deposit accounts	$	(24)	$	(448)	$	(472)	$	117	$	263	$	380
Borrowings of consolidated securitization entities	(91)		(30)		(121)		(21)		35		14

Senior unsecured notes	(47)		14		(33)		2		25		27

Change in interest expense from total interest-bearing liabilities	(162)		(464)		(626)		98		323		421
Total change in net interest income	$	(1,523)	$	(874)	$	(2,397)	$	1,031	$	(350)	$	681

Business Trends and Conditions

We believe our business and results of operations will be impacted in the future by various trends and conditions, including the following:

•Growth in loan receivables and interest income. We have experienced significant declines in consumer purchase activity following the outbreak of COVID-19 and associated governmental preventative measures, such as closures of non-essential businesses. Interest and fees on loans decreased 14.7% for the year ended December 31, 2020 compared to the prior year period. The sale of the Walmart consumer portfolio sale drove a decline compared to the prior year period of approximately 9%. The remaining decrease in interest and fees on loans, along with a decline in loan receivables of 6% and a reduction in purchase volume for our ongoing partners of 2%, in all instances at or for the year ended December 31, 2020, were primarily due to the impacts of COVID-19. In addition, we have experienced a reduction in benchmark interest rates and we have also provided, for a temporary period of time, forbearance in terms of deferrals of minimum payments and waivers of interest and fees for qualifying cardholders that were impacted by COVID-19 and requested relief. The decreases in loan receivables and benchmark interest rates along with the forbearance actions have led to the reductions in interest income for the year ended December 31, 2020. We expect both loan receivables and interest income, which experienced the most significant adverse effects from COVID-19, to increase in 2021 as compared to the prior year, and also expect to see slowing payment rates and increasing purchase volume in the second half of 2021 which will also contribute to a return to asset growth and increases in interest income. The extent of the impacts from these conditions is currently uncertain and dependent on various factors. These factors include, the nature of and duration for which any preventative measures remain in place, including responses to increases in COVID-19 infections nationally that may occur, the pace of the national rollout of vaccinations and the type and size of any additional stimulus measures and other policy responses that the U.S. government may adopt.

•Asset quality. The COVID-19 pandemic has driven significant improvement in customer payment behavior such that our asset quality metrics have seen historic lows during 2020. Our over-30 day loan delinquencies as a percentage of period-end loan receivables decreased to 3.07% at December 31, 2020 from 4.44% at December 31, 2019. We anticipate that the current levels of filings for unemployment benefits in the United States will result in an increase from current levels in the Company’s delinquencies and net charge-off rate in 2021. We expect these increases to be partially mitigated by the effects of governmental actions such as the CARES Act, as amended by the Consolidated Appropriations Act, 2021, as well as any further proposed stimulus in 2021. As such, we anticipate experiencing increases to both delinquencies and net charge-offs to occur in the second half of 2021. During 2020 we also took certain forbearance actions for our customers impacted by COVID-19. While we have experienced a higher incidence rate of accounts becoming delinquent following their exit from these short-term programs, as compared to accounts that did not enter the forbearance program, we do not expect these actions to have a material impact to the Company's overall delinquency metrics. We have also experienced an increase to our allowance for credit losses and provision for credit losses during the year ended December 31, 2020 attributable to the impact of COVID-19, and our allowance coverage ratio at December 31, 2020 was 12.54%. As the economic environment develops during 2021, we anticipate that our loan loss reserve builds will be lower than those experienced in 2020. However, to the extent the current environment continues beyond our expectations or deteriorates further, we may experience further increases to our allowance for credit losses and provision for credit losses related to COVID-19.

•Retailer share arrangement payments under our program agreements. Retailer share arrangements decreased 5.5% to $3.6 billion for the year ended December 31, 2020, reflecting the impact of COVID-19 on program performance. We believe that the payments we make to our partners under our retailer share arrangements, in the aggregate, in 2021 are likely to decrease in absolute terms compared to the year ended December 31, 2020, primarily as a result of the performance of our programs, which would reflect the expected credit trends discussed above. This decrease will be partially offset by growth of the programs. See Management’s Discussion and Analysis—Retailer Share Arrangements for additional information on these agreements.

•Extended duration of our Retail Card program agreements. Our Retail Card program agreements typically have contract terms ranging from approximately five to ten years, and the average length of our relationship with our Retail Card partners is 23 years. We expect to continue to benefit from these programs on a long-term basis.

A total of 14 of our 25 ongoing Retail Card program agreements have an expiration date in 2025 or beyond. These 14 program agreements represented in the aggregate 87% and 88% of our Retail Card interest and fees on loans for the year ended December 31, 2020 and of our Retail Card loan receivables at December 31, 2020 attributable to our ongoing programs.

•Growth in interchange revenues and loyalty program costs. We believe that as a result of the overall growth in Dual Card and general purpose co-branded credit card transactions occurring outside of our Retail Card partners’ locations, interchange revenues will increase in excess of the growth of our Retail Card loan receivables. The expected growth in these transactions is driven, in part, by both existing and new loyalty programs with our Retail Card partners. In addition, we continue to offer and add new loyalty programs for our private label credit cards, for which we typically do not receive interchange fees. The growth in these existing and new loyalty programs will result in an increase in costs associated with these programs. Overall, we expect our loyalty program costs to continue to be largely offset by our interchange revenues. These changes have been contemplated in our program agreements with our Retail Card partners and are a component of the calculation of our payments due under our retailer share arrangements.

•Capital and liquidity levels. We continue to expect to maintain sufficient capital and liquidity resources to support our daily operations, our business growth, and our credit ratings as well as regulatory and compliance requirements in a cost effective and prudent manner through expected and unexpected market environments. During the year ended December 31, 2020, we declared and paid dividends of $520 million and repurchased $1.0 billion of our outstanding common stock. In response to the COVID-19 outbreak, we temporarily suspended our share repurchase plans in 2020. We plan to continue to deploy capital through both dividends and share repurchases subject to regulatory approval, as well as to support business growth. In January 2021, we announced that the Board of Directors approved a new share repurchase program of up to $1.6 billion through December 31, 2021, beginning in the first quarter of 2021, subject to the Company’s capital plan, market conditions and other factors, including regulatory restrictions and required approvals, if any. We continue to expect to maintain capital ratios well in excess of minimum regulatory requirements. At December 31, 2020, the Company had a Basel III common equity Tier 1 ratio of 15.9%, which reflects our election to defer the impact of CECL on our regulatory capital, which will now be phased-in over a three-year period from January 1, 2022 through December 31, 2024.

We expect that our liquidity portfolio will continue to be sufficient to support all of our business objectives and to meet all regulatory requirements for the foreseeable future. At December 31, 2020, due to the reduction in loan receivables and strength in our deposit platform, we continued to carry a high level of liquidity, which we expect to continue through the first half of 2021 in line with our expectations of customer payment behavior. We expect to deploy this excess liquidity during the second half of 2021 in line with our expectations of receivable growth, which will contribute to an increase in net interest margin in the second half of 2021 as we deploy this excess liquidity.

Seasonality

In our Retail Card and Payment Solutions platforms, we experience fluctuations in transaction volumes and the level of loan receivables as a result of higher seasonal consumer spending and payment patterns that typically result in an increase of loan receivables from August through a peak in late December, with reductions in loan receivables occurring over the first and second quarters of the following year as customers pay their balances down.

The seasonal impact to transaction volumes and the loan receivables balance typically results in fluctuations in our results of operations, delinquency metrics and the allowance for credit losses as a percentage of total loan receivables between quarterly periods. These fluctuations are generally most evident between the fourth quarter and the first quarter of the following year.

In addition to the seasonal variance in loan receivables discussed above, we also typically experience a seasonal increase in delinquency rates and delinquent loan receivables balances during the third and fourth quarters of each year due to lower customer payment rates resulting in higher net charge-off rates in the first and second quarters. Our delinquency rates and delinquent loan receivables balances typically decrease during the subsequent first and second quarters as customers begin to pay down their loan balances and return to current status resulting in lower net charge-off rates in the third and fourth quarters. Because customers who were delinquent during the fourth quarter of a calendar year have a higher probability of returning to current status when compared to customers who are delinquent at the end of each of our interim reporting periods, we expect that a higher proportion of delinquent accounts outstanding at an interim period end will result in charge-offs, as compared to delinquent accounts outstanding at a year end. Consistent with this historical experience, we generally experience a higher allowance for credit losses as a percentage of total loan receivables at the end of an interim period, as compared to the end of a calendar year. In addition, despite improving credit metrics such as declining past due amounts, we may experience an increase in our allowance for credit losses at an interim period end compared to the prior year end, reflecting these same seasonal trends.

Interest Income

Interest income is comprised of interest and fees on loans, which includes merchant discounts provided by partners to compensate us in almost all cases for all or part of the promotional financing provided to their customers, and interest on cash and equivalents and investment securities. We include in interest and fees on loans any past due interest and fees deemed to be collectible. Direct loan origination costs on credit card loans are deferred and amortized on a straight-line basis over a one-year period and recorded in interest and fees on loans. For non-credit card receivables, direct loan origination costs are deferred and amortized over the life of the loan and recorded in interest and fees on loans.

We analyze interest income as a function of two principal components: average interest-earning assets and yield on average interest-earning assets. Key drivers of average interest-earning assets include:

•purchase volumes, which are influenced by a number of factors including macroeconomic conditions and consumer confidence generally, our partners’ sales and our ability to increase our share of those sales;

•payment rates, reflecting the extent to which customers maintain a credit balance;

•charge-offs, reflecting the receivables that are deemed not to be collectible;

•the size of our liquidity portfolio; and

•portfolio acquisitions when we enter into new partner relationships.

Key drivers of yield on average interest-earning assets include:

•pricing (contractual rates of interest, movement in prime rates, late fees and merchant discount rates);

•changes to our mix of loans (e.g., the number of loans bearing promotional rates as compared to standard rates);

•frequency of late fees incurred when account holders fail to make their minimum payment by the required due date;

•credit performance and accrual status of our loans; and

•yield earned on our liquidity portfolio.

Interest income decreased by $3.0 billion, or 15.8%, for the year ended December 31, 2020. The decrease was driven primarily by a decrease in interest and fees on loans related to the Walmart consumer portfolio sale, as well as the impact of COVID-19. The sale of the Walmart consumer portfolio drove a decline in interest and fees on loans compared to the prior year period of approximately 9%.

Average interest-earning assets


Years ended December 31 ($ in millions)	2020		2019
Loan receivables, including held for sale	$	80,138	$	88,649
Liquidity portfolio and other	20,668		17,784
Total average interest-earning assets	$	100,806	$	106,433

The decrease in average loan receivables, including held for sale, of 9.6% for the year ended December 31, 2020 was primarily driven by the sale of loan receivables associated with the Walmart and Yamaha portfolios, in October 2019 and January 2020, respectively. In addition, the decreases also reflect a decline in average active accounts of 4.2% at our ongoing partner programs, primarily due to the impact of COVID-19.

Yield on average interest-earning assets

The yield on average interest-earning assets decreased for the year ended December 31, 2020 primarily due to a decrease in the yield on average loan receivables and a decrease in the percentage of interest-earning assets attributable to loan receivables. The yield on average loan receivables, including held for sale, decreased 120 basis points to 19.90% for the year ended December 31, 2020, primarily driven by lower benchmark rates and the sale of the Walmart consumer portfolio, as well as fee and interest waivers related to COVID-19.

Interest Expense

Interest expense is incurred on our interest-bearing liabilities, which consisted of interest-bearing deposit accounts, borrowings of consolidated securitization entities and senior unsecured notes.

Key drivers of interest expense include:

•the amounts outstanding of our deposits and borrowings;

•the interest rate environment and its effect on interest rates paid on our funding sources; and

•the changing mix in our funding sources.

Interest expense decreased by $626 million, or 27.3%, for the year ended December 31, 2020, primarily driven by lower benchmark interest rates and a decrease in borrowings of our securitization entities and senior unsecured notes. Our cost of funds decreased to 2.07% for the year ended December 31, 2020 compared to 2.66% for the year ended December 31, 2019.

Average interest-bearing liabilities


Years ended December 31 ($ in millions)	2020		2019
Interest-bearing deposit accounts	$	63,755	$	64,756
Borrowings of consolidated securitization entities	8,675		11,941
Senior unsecured notes	8,171		9,310

Total average interest-bearing liabilities	$	80,601	$	86,007

The decrease in average interest-bearing liabilities for the year ended December 31, 2020 was primarily driven by a decrease in borrowings of our securitization entities and senior unsecured notes.

Net Interest Income

Net interest income represents the difference between interest income and interest expense.

Net interest income decreased by $2.4 billion, or 14.3%, for the year ended December 31, 2020, primarily driven by a decrease in interest and fees on loans related to the Walmart consumer portfolio sale and the impact of COVID-19, partially offset by a decrease in interest expense reflecting lower benchmark interest rates.

Retailer Share Arrangements

Most of our Retail Card program agreements and certain other program agreements contain retailer share arrangements that provide for payments to our partners if the economic performance of the program exceeds a contractually defined threshold. We also provide other economic benefits to our partners such as royalties on purchase volume or payments for new accounts, in some cases instead of retailer share arrangements (for example, on our co-branded credit cards). All of these arrangements are designed to align our interests and provide an additional incentive to our partners to promote our credit products. Although the retailer share arrangements vary by partner, these arrangements are generally structured to measure the economic performance of the program, based typically on agreed upon program revenues (including interest income and certain other income) less agreed upon program expenses (including interest expense, provision for credit losses, retailer payments and operating expenses), and share portions of this amount above a negotiated threshold. The threshold and economic performance of a program that are used to calculate payments to our partners may be based on, among other things, agreed upon measures of program expenses rather than our actual expenses, and therefore increases in our actual expenses (such as funding costs or operating expenses) may not necessarily result in reduced payments under our retailer share arrangements. These arrangements are typically designed to permit us to achieve an economic return before we are required to make payments to our partners based on the agreed contractually defined threshold. Our payments to partners pursuant to these retailer share arrangements have generally increased in recent years, primarily as a result of the growth and performance of the programs in which we have retailer share arrangements, as well as changes to the terms of certain program agreements that have been renegotiated in the past few years.

We believe that our retailer share arrangements have been effective in helping us to grow our business by aligning our partners’ interests with ours. We also believe that the changes to the terms of certain program agreements in recent years will help us to grow our business by providing an additional incentive to the relevant partners to promote our credit products going forward. Payments to partners pursuant to these retailer share arrangements would generally decrease, and mitigate the impact on our profitability, in the event of declines in the performance of the programs or the occurrence of other unfavorable developments that impact the calculation of payments to our partners pursuant to our retailer share arrangements.

Retailer share arrangements decreased by $213 million, or 5.5%, for the year ended December 31, 2020, reflecting the impact of COVID-19 on program performance.

Provision for Credit Losses

Provision for credit losses is the expense related to maintaining the allowance for credit losses at an appropriate level to absorb the expected credit losses for the life of the loan balance as of the period end date. Provision for credit losses in each period is a function of net charge-offs (gross charge-offs net of recoveries) and the required level of the allowance for credit losses. Our process to determine our allowance for credit losses is based upon our estimate of expected credit losses for the life of the loan balance as of the period end date. See “Critical Accounting Estimates - Allowance for Credit Losses” and Note 2. Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements for additional information on our allowance for credit loss methodology.

Provision for credit losses increased by $1.1 billion, or 27.0%, for the year ended December 31, 2020, primarily driven by the effects of the prior year reductions in reserves for credit losses related to the Walmart consumer portfolio sale and higher reserve build in the current year, partially offset by lower net charge-offs.

The higher reserve build reflects both the projected impacts of COVID-19 and the increase attributable to the CECL implementation of $285 million for the year ended December 31, 2020. The prior year reductions in reserves related to the Walmart consumer portfolio were $1.1 billion for the year ended December 31, 2019. Our allowance coverage ratio increased to 12.54% at December 31, 2020, as compared to 6.42% at December 31, 2019.

Other Income


Years ended December 31 ($ in millions)	2020		2019
Interchange revenue	$	652	$	748
Debt cancellation fees	278		265
Loyalty programs	(649)		(743)
Other	124		101
Total other income	$	405	$	371

Interchange revenue

We earn interchange fees on Dual Card and other co-branded credit card transactions outside of our partners’ sales channels, based on a flat fee plus a percentage of the purchase amount. Interchange revenue has been, and is expected to continue to be, driven primarily by growth in our Dual Card and general purpose co-branded credit card products.

Interchange revenue decreased by $96 million, or 12.8%, for the year ended December 31, 2020, driven by lower purchase volume and the effects from the Walmart consumer portfolio sale.

Debt cancellation fees

Debt cancellation fees relate to payment protection products purchased by our credit card customers. Customers who choose to purchase these products are charged a monthly fee based on their account balance. In return, we will cancel all or a portion of a customer’s credit card balance in the event of certain qualifying life events. We offer our debt cancellation product to our credit card customers via online, mobile and, on a limited basis, direct mail.

Debt cancellation fees increased by $13 million, or 4.9%, for the year ended December 31, 2020, primarily as a result of increases in our CareCredit and Payment Solutions sales platforms, partially offset by the effects from the Walmart consumer portfolio sale.

Loyalty programs

We operate a number of loyalty programs primarily in our Retail Card platform that are designed to generate incremental purchase volume per customer, while reinforcing the value of the card and strengthening cardholder loyalty. These programs typically provide cardholders with statement credit or cash back rewards. Other programs include rewards points, which are redeemable for a variety of products or awards, or merchandise discounts that are earned by achieving a pre-set spending level on their private label credit card, Dual Card or general purpose co-branded credit card. Growth in loyalty program payments has been, and is expected to continue to be, driven by growth in purchase volume related to existing loyalty programs and the rollout of new loyalty programs.

Loyalty programs cost decreased by $94 million, or 12.7%, for the year ended December 31, 2020, primarily as a result of the Walmart consumer portfolio sale and lower purchase volume due to the effects of COVID-19, partially offset by growth related to our digital partners.

Other

Other includes a variety of items including ancillary fees, commission fees related to Pets Best, changes in the fair value of equity investments, realized gains or losses associated with the sale of investments or other assets and changes in contingent consideration obligations.

Other increased by $23 million, or 22.8%, for the year ended December 31, 2020 primarily due to gains related to investment securities and commission fees related to Pets Best.

Other Expense


Years ended December 31 ($ in millions)	2020		2019
Employee costs	$	1,380	$	1,455
Professional fees	759		867
Marketing and business development	448		549
Information processing	492		485
Other	976		889
Total other expense	$	4,055	$	4,245

Employee costs

Employee costs primarily consist of employee compensation and benefit costs.

Employee costs decreased by $75 million, or 5.2%, for the year ended December 31, 2020, primarily driven by reductions in headcount, partially offset by a restructuring charge of $41 million incurred in 2020.

Professional fees

Professional fees consist primarily of outsourced provider fees (e.g., collection agencies and call centers), legal, accounting, consulting, and recruiting expenses.

Professional fees decreased by $108 million, or 12.5%, for the year ended December 31, 2020, primarily due to interim servicing costs in the prior year associated with acquired portfolios.

Marketing and business development

Marketing and business development costs consist primarily of our contractual and discretionary marketing and business development spend, as well as amortization expense associated with retail partner contract acquisitions and extensions.

Marketing and business development costs decreased by $101 million, or 18.4%, for the year ended December 31, 2020, primarily due to lower brand advertising and lower portfolio marketing investments.

Information processing

Information processing costs primarily consist of fees related to outsourced information processing providers, credit card associations and software licensing agreements.

Information processing costs increased slightly by $7 million, or 1.4%, for the year ended December 31, 2020, primarily due to higher amortization of capitalized software related to strategic investments, partially offset by lower data processing costs.

Other

Other primarily consists of postage, operational losses, litigation and regulatory matters expense and various other corporate overhead items such as facilities' costs and telephone charges. Postage is driven primarily by the number of our active accounts and the percentage of customers that utilize our electronic billing option. Fraud, or operational losses, are driven primarily by the number of our active Dual Card and general purpose co-branded credit card accounts.

The “other” component increased by $87 million, or 9.8%, for the year ended December 31, 2020, primarily due to a restructuring charge of $46 million related to operating lease and other asset impairments, as well as higher operational losses.

Provision for Income Taxes


Years ended December 31 ($ in millions)	2020			2019
Effective tax rate	22.9		%	23.3		%
Provision for income taxes	$	412		$	1,140

The effective tax rate for the year ended December 31, 2020, decreased compared to the prior year primarily due to the decline in pre-tax income, which led to a proportionally larger impact related to discrete tax benefits. The effective tax rate differs from the U.S. federal statutory tax rate primarily due to state income taxes.

Platform Analysis

As discussed above under “Our Business—Our Sales Platforms,” we offer our products through three sales platforms (Retail Card, Payment Solutions and CareCredit), which management measures based on their revenue-generating activities. The following is a discussion of certain supplemental information for the year ended December 31, 2020, for each of our sales platforms.

Retail Card


Years ended December 31 ($ in millions)	2020		2019
Purchase volume	$	107,018	$	114,440
Period-end loan receivables	$	52,130	$	56,387
Average loan receivables, including held for sale	$	50,943	$	58,984
Average active accounts (in thousands)	49,258		57,073

Interest and fees on loans	$	11,015	$	13,557
Retailer share arrangements	$	(3,559)	$	(3,762)
Other income	$	249	$	277

Retail Card interest and fees on loans decreased by $2,542 million, or 18.8%, for the year ended December 31, 2020. The sale of the Walmart consumer portfolio drove a decline compared to the prior year period of approximately 12%. The remaining decrease was primarily due to the impact of COVID-19.

Retailer share arrangements decreased by $203 million, or 5.4%, for the year ended December 31, 2020, primarily as a result of the factors discussed under the heading “Retailer Share Arrangements” above.

Other income decreased by $28 million, or 10.1%, for the year ended December 31, 2020, primarily driven by a decrease in interchange revenue and the effects from the Walmart consumer portfolio sale, partially offset by lower loyalty costs.

Payment Solutions


Years ended December 31 ($ in millions)	2020		2019
Purchase volume	$	22,041	$	23,880
Period-end loan receivables	$	20,153	$	20,528
Average loan receivables, including held for sale	$	19,597	$	19,918
Average active accounts (in thousands)	11,921		12,451

Interest and fees on loans	$	2,661	$	2,829
Retailer share arrangements	$	(73)	$	(85)
Other income	$	44	$	15

Payment Solutions interest and fees on loans decreased by $168 million, or 5.9%, for the year ended December 31, 2020. The decrease was primarily driven by lower yield on loan receivables and the sale of the Yamaha portfolio.

CareCredit



Years ended December 31 ($ in millions)	2020		2019
Purchase volume	$	10,025	$	11,091
Period-end loan receivables	$	9,584	$	10,300
Average loan receivables	$	9,598	$	9,747
Average active accounts (in thousands)	5,952		6,197

Interest and fees on loans	$	2,274	$	2,319
Retailer share arrangements	$	(13)	$	(11)
Other income	$	112	$	79

CareCredit interest and fees on loans decreased by $45 million, or 1.9%, for the year ended December 31, 2020. The decrease was primarily driven by lower merchant discount as a result of the decline in purchase volume and a reduction in average loan receivables.

Other income increased by $33 million, or 41.8%, for the year ended December 31, 2020 primarily due to commission fees earned by Pets Best.

Loan Receivables

____________________________________________________________________________________________

Loan receivables are our largest category of assets and represent our primary source of revenues. The following discussion provides supplemental information regarding our loan receivables portfolio. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies and Note 4. Loan Receivables and Allowance for Credit Losses to our consolidated financial statements for additional information related to our Loan Receivables, including troubled debt restructurings.

Our loan receivables portfolio, excluding held for sale, had the following maturity distribution at December 31, 2020.


($ in millions)	Within 1 Year(1)		1-5 Years(2)		5-15 Years		After 15 Years		Total
Loans
Credit cards	$	77,698	$	757	$	—	$	—	$	78,455
Consumer installment loans(3)	670		1,443		12		—		2,125
Commercial credit products	1,245		5		—		—		1,250
Other	13		6		16		2		37
Total loans	$	79,626	$	2,211	$	28	$	2	$	81,867
Loans due after one year at fixed interest rates	N/A		$	2,211	$	28	$	2	$	2,241
Loans due after one year at variable interest rates	N/A		—		—		—		—
Total loans due after one year	N/A		$	2,211	$	28	$	2	$	2,241

______________________

(1)Credit card loans have minimum payment requirements but no stated maturity and therefore are included in the due within one year category. However, many of our credit card holders will revolve their balances, which may extend their repayment period beyond one year for balances at December 31, 2020.

(2)Credit card and commercial loans due after one year relate to Troubled Debt Restructuring ("TDR") assets.

(3)Reflects scheduled repayments up to the final contractual maturity of our installment loans.

Our loan receivables portfolio had the following geographic concentration at December 31, 2020.


($ in millions)	Loan Receivables Outstanding		% of Total Loan Receivables Outstanding
State
Texas	$	8,392	10.3	%
California	$	8,367	10.2	%
Florida	$	7,072	8.6	%
New York	$	4,507	5.5	%
North Carolina	$	3,384	4.1	%

COVID-19 Related Loan Modifications

TDRs are those loans for which we have granted a concession to a borrower experiencing financial difficulties where we do not receive adequate compensation. These loans are identified at the point when the borrower enters into a modification program. See Note 4. Loan Receivables and Allowance for Credit Losses to our consolidated financial statements for additional information on loans classified as TDRs. However, short-term loan modifications to support our customers impacted by COVID-19 are not accounted for as a TDR.

Under the CARES Act, banks may elect to deem that loan modifications do not result in TDRs if they are (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) January 1, 2022. At December 31, 2020, we have not made such an election.

However, certain other short-term modifications made on a good faith basis in response to COVID-19 are also not considered TDRs under ASC Subtopic 310-40. This includes delays in payment that are insignificant or short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers or extensions of repayment terms to borrowers who were current prior to any relief. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

During 2020 we provided support to our customers impacted by COVID-19 through various actions, such as minimum payment deferrals and interest and late fee waivers. Loans enrolled in minimum payment deferrals generally continued to accrue interest and their delinquency status as of the modification date did not advance through the deferment period.

During the year ended December 31, 2020, we enrolled approximately 2.1 million customers in short-term modifications to defer minimum payments, representing $3.9 billion in loan receivables. The substantial majority of these enrollments were for our credit card customers. For certain customers we also provided waivers of interest charges or late fees. During the year ended December 31, 2020, the waivers of interest and late fees provided to our customers resulted in foregone interest and fee income of $88 million.

At December 31, 2020, all of the enrolled accounts have exited our forbearance programs. While we have experienced a higher incidence rate of accounts becoming delinquent following their exit from these short-term programs, as compared to accounts that did not enter the forbearance program, these accounts did not have a material impact to the Company's overall delinquency metrics at December 31, 2020.

Delinquencies

Over-30 day loan delinquencies as a percentage of period-end loan receivables decreased to 3.07% at December 31, 2020, as compared to 4.44% at December 31, 2019. The 137 basis point decrease in 2020 was primarily driven by an improvement in customer payment behavior.

Net Charge-Offs

Net charge-offs consist of the unpaid principal balance of loans held for investment that we determine are uncollectible, net of recovered amounts. We exclude accrued and unpaid finance charges and fees and third-party fraud losses from charge-offs. Charged-off and recovered finance charges and fees are included in interest and fees on loans while third-party fraud losses are included in other expense. Charge-offs are recorded as a reduction to the allowance for credit losses and subsequent recoveries of previously charged-off amounts are credited to the allowance for credit losses. Costs incurred to recover charged-off loans are recorded as collection expense and included in other expense in our Consolidated Statements of Earnings.

The table below sets forth the ratio of net charge-offs to average loan receivables, including held for sale, (“net charge-off rate”) for the periods indicated.


Years ended December 31	2020		2019		2018
Net charge-off rate	4.58	%	5.65	%	5.63	%

Allowance for Credit Losses and Impact of Adoption of CECL

The allowance for credit losses totaled $10.3 billion at December 31, 2020, compared with allowance for loan losses of $5.6 billion at December 31, 2019. Similarly, our allowance for credit losses as a percentage of total loan receivables increased to 12.54% at December 31, 2020, from 6.42% at December 31, 2019.

The increases in the allowance for credit losses and allowance coverage ratio reflect the impact of the CECL adoption and implementation in January 2020. Upon adoption of the accounting standard on January 1, 2020, we recorded an increase to our allowance for loan losses of $3.0 billion. The allowance for credit losses at December 31, 2020 reflects our estimate of expected credit losses for the life of the loan receivables on our consolidated statement of financial position at December 31, 2020, which includes the consideration of current and expected macroeconomic conditions that existed at that date.

During the initial year of implementation of the CECL accounting standard we continued to determine what our allowance for credit losses and allowance coverage ratio would have been if the prior accounting guidance were still in effect, in order to help provide comparability with our prior year results. The following table illustrates the effects of the implementation of the accounting standard to our allowance for credit losses and allowance coverage ratio at December 31, 2020.


($ in millions)	Amounts under prior accounting guidance(1)			Impact of adoption of CECL (January 1, 2020)			Ongoing implementation of CECL model			GAAP reported amounts
At December 31, 2020
Allowance for credit losses	$	6,959		$	3,021		$	285		$	10,265
Allowance coverage ratio	8.50		%	3.69		%	0.35		%	12.54		%

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(1)Amounts shown above as if the prior accounting guidance remained in effect are non-GAAP measures and are presented only in this initial year after adoption for comparability with the prior year reported GAAP metrics.

In addition to the effects of the increases attributable to CECL noted in the above table, our allowance coverage ratio increased as compared to December 31, 2019 primarily due to the projected impacts from COVID-19.

Credit Quality Indicators

As part of our credit risk management activities, on an ongoing basis, we assess overall credit quality by reviewing information related to the performance of a customer’s account with us, as well as information from credit bureaus relating to the customer’s broader credit performance. We now utilize VantageScore (“Vantage”) credit scores to assist in our assessment of credit quality as we believe Vantage scores more U.S. consumers, and potential applicants, as compared to our prior use of FICO credit scores. Vantage credit scores are obtained at origination of the account and are refreshed, at a minimum quarterly, but could be as often as weekly, to assist in predicting customer behavior. We categorize these credit scores into the following three credit score categories: (i) 651 or higher, which are considered the strongest credits; (ii) 591 to 650, considered moderate credit risk; and (iii) 590 or less, which are considered weaker credits. We believe these three categories of Vantage credit scores represent an approximation of the categories previously reported using FICO data in terms of both probability of default and customer account distribution.

The following charts show the proportion of our loan portfolios that were from customers with a Vantage score of 651 or higher, as compared to those customers with a FICO score of 661 or higher. The quarterly information presented illustrates the comparability of credit trends under each scoring method and category of strongest credit.

See Note 4. Loan Receivables and Allowance for Credit Losses to our consolidated financial statements for additional information related to our credit quality indicators related to our loan receivables.

Funding, Liquidity and Capital Resources

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We maintain a strong focus on liquidity and capital. Our funding, liquidity and capital policies are designed to ensure that our business has the liquidity and capital resources to support our daily operations, our business growth, our credit ratings and our regulatory and policy requirements, in a cost effective and prudent manner through expected and unexpected market environments.

Funding Sources

Our primary funding sources include cash from operations, deposits (direct and brokered deposits), securitized financings and senior unsecured notes.

The following table summarizes information concerning our funding sources during the periods indicated:


	2020						2019						2018
Years ended December 31 ($ in millions)	Average Balance		%		Average Rate		Average Balance		%		Average Rate		Average Balance		%		Average Rate
Deposits(1)	$	63,755	79.1	%	1.7	%	$	64,756	75.3	%	2.4	%	$	59,216	73.0	%	2.0	%
Securitized financings	8,675		10.8		2.7		11,941		13.9		3.0		12,694		15.6		2.7
Senior unsecured notes	8,171		10.1		4.1		9,310		10.8		3.9		9,257		11.4		3.7


Total	$	80,601	100.0	%	2.1	%	$	86,007	100.0	%	2.7	%	$	81,167	100.0	%	2.3	%

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(1)Excludes $306 million, $280 million and $282 million average balance of non-interest-bearing deposits for the years ended December 31, 2020, 2019 and 2018, respectively. Non-interest-bearing deposits comprise less than 10% of total deposits for the years ended December 31, 2020, 2019 and 2018.

Deposits

We obtain deposits directly from retail and commercial customers (“direct deposits”) or through third-party brokerage firms that offer our deposits to their customers (“brokered deposits”). At December 31, 2020, we had $52.1 billion in direct deposits and $10.7 billion in deposits originated through brokerage firms (including network deposit sweeps procured through a program arranger that channels brokerage account deposits to us). A key part of our liquidity plan and funding strategy is to continue to utilize our direct deposits base as a source of stable and diversified low cost funding.

Our direct deposits include a range of FDIC-insured deposit products, including certificates of deposit, IRAs, money market accounts and savings accounts.

Brokered deposits are primarily from retail customers of large brokerage firms. We have relationships with 11 brokers that offer our deposits through their networks. Our brokered deposits consist primarily of certificates of deposit that bear interest at a fixed rate and at December 31, 2020, had a weighted average remaining life of 1.7 years. These deposits generally are not subject to early withdrawal.

Our ability to attract deposits is sensitive to, among other things, the interest rates we pay, and therefore, we bear funding risk if we fail to pay higher rates, or interest rate risk if we are required to pay higher rates, to retain existing deposits or attract new deposits. To mitigate these risks, our funding strategy includes a range of deposit products, and we seek to maintain access to multiple other funding sources, including securitized financings (including our undrawn committed capacity) and unsecured debt.

The following table summarizes certain information regarding our interest-bearing deposits by type (all of which constitute U.S. deposits) for the periods indicated:


Years ended December 31 ($ in millions)	2020						2019						2018
	Average Balance		%		Average Rate		Average Balance		%		Average Rate		Average Balance		%		Average Rate
Direct deposits:
Certificates of deposit (including IRA certificates of deposit)	$	30,816	48.3	%	2.1	%	$	33,482	51.7	%	2.5	%	$	28,152	47.5	%	1.9	%
Savings accounts (including money market accounts)	21,910		34.4	%	1.1		18,773		29.0		2.1		17,989		30.4		1.7
Brokered deposits	11,029		17.3	%	1.8		12,501		19.3		2.7		13,075		22.1		2.5
Total interest-bearing deposits	$	63,755	100.0	%	1.7	%	$	64,756	100.0	%	2.4	%	$	59,216	100.0	%	2.0	%

Our deposit liabilities provide funding with maturities ranging from one day to ten years. At December 31, 2020, the weighted average maturity of our interest-bearing time deposits was 1.0 years. See Note 7. Deposits to our consolidated financial statements for more information on their maturities.

The following table summarizes deposits by contractual maturity at December 31, 2020.


($ in millions)	3 Months or Less		Over 3 Months but within 6 Months		Over 6 Months but within 12 Months		Over 12 Months		Total
U.S. deposits (less than FDIC insurance limit)(1)(2)	$	30,096	$	5,222	$	6,214	$	8,403	$	49,935
U.S. deposits (in excess of FDIC insurance limit)(2)
Direct deposits:
Certificates of deposit (including IRA certificates of deposit)	1,979		1,381		1,783		1,347		6,490
Savings accounts (including money market accounts)	6,336		—		—		—		6,336
Brokered deposits:
Sweep accounts	21		—		—		—		21
Total	$	38,432	$	6,603	$	7,997	$	9,750	$	62,782

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(1)Includes brokered certificates of deposit for which underlying individual deposit balances are assumed to be less than $250,000.

(2)The standard deposit insurance amount is $250,000 per depositor, for each account ownership category. Deposits in excess of FDIC insurance limit presented above include partially uninsured accounts.

Securitized Financings

We access the asset-backed securitization market using the Synchrony Credit Card Master Note Trust (“SYNCT”) and the Synchrony Card Issuance Trust (“SYNIT”) through which we may issue asset-backed securities through both public transactions and private transactions funded by financial institutions and commercial paper conduits. In addition, we issue asset-backed securities in private transactions through the Synchrony Sales Finance Master Trust (“SFT”).

At December 31, 2020, we had $2.3 billion of outstanding private asset-backed securities and $5.5 billion of outstanding public asset-backed securities, in each case held by unrelated third parties.

The following table summarizes expected contractual maturities of the investors’ interests in securitized financings, excluding debt premiums, discounts and issuance costs at December 31, 2020.

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